As a veteran investor, I’m a big fan of passive income — those earnings that I don’t have to work to collect. For me, the best form of passive income is share dividends. These regular cash payments made by companies to shareholders typically come half-yearly or quarterly. But not all UK-listed companies pay dividends, so I usually rely on members of the FTSE 100 index for my unearned income. Here are three Footsie shares that I don’t own, but would happily buy today to boost my cash flow.
#1: passive income stock Evraz
Of my three top stocks for passive income, I view Evraz (LSE: EVR) as the riskiest share. This global steelmaker and miner has major operations in Russia, Ukraine and North America. Its products include steel (13.6m tonnes in 2020), iron ore, coal and vanadium. Its largest shareholder is billionaire businessman Roman Abramovich, owner of Premier League club Chelsea FC. At Friday’s closing price of 608.45p, this group was valued at £8.9bn. Currently, Evraz shares trade on a price-to-earnings ratio of 7.7 and an earnings yield of 12.9%. Furthermore, its dividend yield of 13.5% is among the highest on offer in the FTSE 100. But dividends are not guaranteed and can be cut or cancelled at any time. Also, generally speaking, the higher the dividend yield, the higher the risk (all else being equal). Hence, even though I’d buy it, I’d expect this mining stock to be fairly volatile in 2022-23.
#2: dividend stock M&G
My second stock for passive income in 2022 is a staid — even boring — business. It’s investment manager M&G (LSE: MNG) and was part of Prudential until M&G floated in October 2019. At Friday’s closing price of 198.9p, M&G was valued at under £5.2bn. Despite global stock markets rising strongly in 2021, M&G’s shares have fallen behind, dropping by 1.8% over one year. Indeed, this stock stands 55.4p (-21.8%) below its 52-week high of 254.3p that it hit on 1 June. As a result, the shares now offer a mouth-watering dividend yield of 9.2% — more than 2.3 times the FTSE 100’s 4% cash yield. Although M&G is a relatively small player in global asset management, I’m surprised that its shares are so lowly valued. Yes, it faces stiff competition from much larger rivals, but this might lead to it being taken over at a premium some day.
#3: high-yielding share Imperial Brands
My third stock for passive income is Imperial Brands (LSE: IMN). Imperial’s shares are hardly popular among ethical investors, as it’s one of the world’s leading tobacco and cigarette suppliers. Yet the Bristol-based firm’s origins date back 235 years to 1786. In 2020, Imperial sold more than 330bn cigarettes in 160 countries, including brands such as Davidoff, Gauloises, JPS, Kool, West, and Winston. At Friday’s closing price of 1,612p, M&G was valued at almost £15.3bn. At present, its shares trade on a lowly price-to-earnings ratio of 5.4 and a bumper earnings yield of 18.6%. Imperial’s huge cash flows mean that its stock offers a dividend yield exceeding 8.6% a year. Of course, this share is hardly one I’d recommend to ESG (Environmental, Social and Governance) investors. Also, Imperial carries a high level of debt on its balance sheet. Nevertheless, its high dividend still appeals to me as an income-seeking investor!
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.