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How I’d make a passive income with these 2 cheap FTSE 100 dividend shares

Peter Stephens
·3-min read

With many FTSE 100 shares cutting their dividends this year, the range of options available to investors seeking a passive income has declined.

However, a number of UK shares continue to offer relatively attractive dividends that could grow in the coming years.

Here are two such companies. They could be worth buying as part of a diversified portfolio of stocks. Over time, they may offer a potent mix of income returns and capital growth potential that improves your financial outlook.

Cheap FTSE 100 stock with dividend growth potential

GlaxoSmithKline’s (LSE: GSK) share price has fallen in line with the FTSE 100 in 2020. The healthcare business has recorded a share price fall of around 20%. While disappointing, it means that the company now has a dividend yield of around 5.5%. That’s relatively high at the present time, and means that it could become increasingly attractive from an income perspective.

The company’s recent results have been somewhat mixed. It has experienced strong performances in its consumer healthcare segment and within its pharmaceutical division. However, disrupted operating conditions have caused weaker performance within its vaccines segment.

This trend may continue in the short run. It could mean that GlaxoSmithKline underperforms other FTSE 100 shares in the coming months. However, its plans to split into two businesses and its price-to-earnings (P/E) ratio of 12.2 suggest that it has total return potential over the coming years.

Improving operating conditions could see higher returns

Fresnillo (LSE: FRES) is another FTSE 100 stock that could offer a worthwhile passive income over the long run. The gold and silver miner currently yields just 1.3% at the present time. However, its dividends are forecast to more than double next year so that it has a forward yield of 3%.

Furthermore, the company’s dividend payouts are expected to be covered 2.3 times by net profit next year. This suggests there is scope for them to rise even further without putting Fresnillo’s finances under pressure.

Certainly, the miner’s prospects are closely linked to the performance of gold and silver prices. However, with it currently having a price-to-earnings growth (PEG) ratio of just 0.2, it seems to offer good value for money relative to other FTSE 100 shares. As such, now could be the right time to buy it.

Building a diverse portfolio

Of course, it is important to build a diverse portfolio of FTSE 100 shares when seeking to make a passive income. Holding a range of companies means that you are less dependent on their individual performances. This may lead to a more resilient income return, as well as greater scope for capital growth in the coming years.

Clearly, stocks such as Fresnillo and GlaxoSmithKline could experience difficult operating conditions in the short run. However, over the long run, their dividend prospects and valuations may mean they post impressive total returns.

The post How I’d make a passive income with these 2 cheap FTSE 100 dividend shares appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Fresnillo and GlaxoSmithKline. The Motley Fool UK has recommended Fresnillo and GlaxoSmithKline. 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.

Motley Fool UK 2020