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Forget the Lloyds share price. These FTSE 100 shares can make me a passive income

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Jabran Khan
·3-min read
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White
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Lloyds Banking Group (LSE:LLOY) has had its fair share of issues recently. Despite a better couple of months for the Lloyds share price, I would still avoid it and focus on FTSE 100 dividend shares to help make me a passive income.

Why I’m avoiding the Lloyds share price

Lloyds share price has risen nearly 30% in value during the past three months. I believe this is closely linked to positive updates related to the British economy. The FTSE 100 bank’s fortunes are tied to a strong economy in my opinion. I like to invest for the long term and this is where Lloyds falls down for me.

I believe Lloyds will be affected by low interest rates dictated by the Bank of England. These must rise for Lloyds and other banks to deliver healthy profits. I believe the implications of Covid-19 will affect the economy for a long time too. Closure of businesses, the end of furlough and rising unemployment will bode negatively for it.

I also fear for traditional banks due to the rise of challenger banks on the scene. The rise of Monzo, Starling, and Metro Bank will only dent Lloyds profits. For now, the Lloyds share price is a no go for me.

Dividends across the FTSE 100

I would rather focus on dividend shares that could help make me a passive income. Dividends were cut across the FTSE 100 when the markets crashed and companies scrambled to conserve cash. With reopening on the horizon, there are some juicy dividend payers out there that represent a better option for me than the Lloyds share price.

FTSE 100 tobacco producers Imperial Brands and British American Tobacco stand out. There is definitely an increased focus on investing ethically, so these two tobacco producers may not be everyone’s cup of tea. Imperial Brands offers a dividend yield of close to 10% and British American Tobacco offers just less at 8%. Despite some of the stigma around smoking firms, these two continue to perform well and distribute healthy dividends to investors which is tempting. Don’t expect the reported demise of the tobacco industry to come to fruition any time soon in my opinion.

Steel maker Evraz is another FTSE 100 dividend payer I really like. A forecast yield close to 11% makes me sit up and pay attention. The risk with Evraz is the fact that the commodities market is a volatile one, almost as volatile as the Lloyds share price. This has been displayed when Evraz experienced a turbulent time and caused its dividend to be erratic. In addition to Evraz, other commodities firms also carry a high dividend yield. These are Rio Tinto which offers 10% and BHP Group on 7.6%.

Year ahead

I have pinpointed a few FTSE 100 dividend shares that stand out to me. The few I have identified definitely represent a better investment that the Lloyds share price right now for me.

In terms of the year ahead, the banking sector could be about to experience a bounce back in 2021. Analysts predict the traditional banks to bounce back and even offer higher dividends. I think dividend yields will still be low but better than 2020 for sure.

Like the Lloyds share price, the Rolls-Royce share price has struggled in the past year. Here’s what I believe may happen over the coming months for Rolls-Royce.

The post Forget the Lloyds share price. These FTSE 100 shares can make me a passive income appeared first on The Motley Fool UK.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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 2021