Buying FTSE 100 shares to make a passive income could become an increasingly popular move. After all, the potential to generate an income elsewhere is relatively low. Assets such as bonds and cash have low yields, while buy-to-let property includes diversification challenges.
With sectors such as healthcare, utilities and consumer goods remaining relatively unpopular among investors focused on growth, now could be a good time to capitalise on high yields. Over time, they could provide a worthwhile income from a £20k investment, or any other amount.
Making a passive income with utility stocks
A number of FTSE 100 shares offer high passive incomes at the present time. However, the uncertain economic outlook means there may be value in purchasing businesses that are relatively unreliant on the economy for their profits. They could deliver resilient incomes for investors that grow in line with inflation.
As such, purchasing stocks such as SSE and National Grid could be a shrewd move. They offer dividend yields that are in excess of 5%. SSE has a dividend plan to raise shareholder payouts by at least as much as inflation over the next few years.
Meanwhile, National Grid has a long track record of dividend growth. The sector could become more popular if the current stock market bubble bursts during the course of 2021.
Buying FTSE 100 shares in the healthcare sector
Healthcare stocks such as GSK and AstraZeneca could also offer worthwhile passive incomes at the present time. GSK has a yield of 5%, and could benefit from its plans to split into two businesses. It may provide greater efficiencies and a sharper focus within pharmaceuticals and consumer healthcare.
AstraZeneca’s yield of around 3% is lower than many FTSE 100 shares. However, its double-digit earnings growth forecasts over the next couple of years suggest that passive income growth could be strong. It may also be able to capitalise on long-term growth trends in emerging markets, where it has invested significant sums of capital over recent years.
Consumer goods companies with high yields
FTSE 100 shares with the largest passive incomes at the present time include consumer goods companies such as Imperial Brands and British American Tobacco. They have dividend yields of just over 8%, which have been aided by disappointing share price performances over recent years.
Although investor sentiment may be weak towards the sector, British American Tobacco and Imperial Brands have strong brands that are likely to experience resolute demand for their products even in the most challenging economic circumstances. This may lead to rising passive incomes over the long run.
The outlook for the economy remains difficult to predict. So their defensive characteristics could be a useful ally. Certainly for an investor who’s seeking to obtain a worthwhile passive income from a £20k investment during what could prove to be a tough year for the world economy.
The post FTSE 100 shares: here’s where I’d invest £20k now to make a passive income appeared first on The Motley Fool UK.
Peter Stephens owns shares of AstraZeneca, British American Tobacco, GlaxoSmithKline, Imperial Brands, and SSE. The Motley Fool UK has recommended GlaxoSmithKline and Imperial Brands. 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