What do I mean by generational wealth? I’m talking about building up enough cash to keep ourselves happy in retirement, and still have some to hand down to our ill-deserving offspring when we pop our clogs. But why FTSE 100 stocks?
Well, the top London index has delivered average annual returns of 8% since it was launched in 1984. Stick that in your Cash ISA!
Compounded up over 30 years, that’s enough to turn a monthly £500 investment into more than a quarter of a million pounds.
Long-term winner
I bought shares in insurer Aviva (LSE: AV.) myself. The Aviva share price has had a few ups and downs, but that can happen with any company. It’s why I only buy shares as part of a diversified Stocks and Shares ISA.
I’d expect the dividend to be volatile too, as the insurance business tends to go through cycles. It can have a few years of very good profits and cash flow, then hit a downturn at the drop of a hat.
To me that really makes the sector even more of a long-term-only one. I’d say an absolute minimum of 10 years, but ideally for life.
But right now, we’re looking at a forward yield of 6.9%.
And forecasts for Aviva show the dividend growing strongly in the next couple of years.
Finance stock cash
I like other stocks in the insurance sector too, including Legal & General with a forecast 8.9% dividend yield, and Phoenix Group Holdings at 9.8%.
I also can’t leave the financial sector without a peek at the banks. Thanks to recent share price gains, the Lloyds Banking Group dividend is down to 4.7%.
But at HSBC Holdings, we still see a 7.3% yield. There’s global and Chinese risk with HSBC, but I still like it, providing the diversification is there too.
I also can’t ignore British American Tobacco with its 9.2% yield. I won’t buy it myself, for ethical reasons, and the whole business faces long-term risk. But I can’t fault anyone who wants to snag a bit of that cash for their grandchildren.
Maybe the best?
I’ve got this far without mentioning National Grid (LSE: NG.), which might just be the best FTSE 100 income stock ever. What am I thinking?
Even the best can bring unexpected risk, though. And a look at the chart shows how the stock slumped at the end of May when the firm announced its big rights issue…
Still, the forecast dividend yield is up at 6%. And National Grid is in the fortunate position of having an effective monopoly on its business.
That business is regulated, mind. And that means the firm doesn’t have full control over what it does and how it uses its shareholders’ money.
But I still think I really should buy some, especially after this drop. As it happens, one of the next generation in my family already has some.
A start
Anyway, that’s just a start, with a few ideas of FTSE 100 stocks that I might buy with my grandchildren in mind. Do your own research, Fools. And teach your children well.
The post These superb FTSE 100 dividend yields could help create generational wealth appeared first on The Motley Fool UK.
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More reading
Here’s how I’d try to get rich, with just £200 a month in a Stocks and Shares ISA
6.11% yield and a P/E of 11! Has the National Grid share price ever looked better value?
3 shares I’m avoiding like the plague in today’s stock market
£10k in savings? Here’s how I’d aim to turn it into a £4,894 annual passive income with Aviva shares
£10k in an ISA? Here’s how I’d aim to generate a ton of passive income
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Alan Oscroft has positions in Aviva Plc and Lloyds Banking Group Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., HSBC Holdings, and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
