At a time when UK inflation is running at 5.4%, the highest level since the early 1990’s, I need to find good ways to put my spare cash to work. Add into the mix the fact that base rates are at a measly 0.25%, and ideally I want to find a way to generate a higher yield. One way I can do this is via generating passive income from FTSE 100 dividend stocks. Here are a few that we like at the moment.
Safe as bricks?
First up is Taylor Wimpey (LSE:TW) . The UK based homebuilder is a stock that we wrote about in more detail earlier this week. It currently has a dividend yield of 5.2%. While we appreciate this won’t offset the full impact of the current inflation level, it’s a lot closer than leaving funds in a below par high yield cash account.
We like the company due to the strong forward order book that it updated investors on in a recent trading release. In the trading update, the business commented that “we ended the year with an excellent order book valued at £2,550 million (31 December 2020: £2,684 million), excluding joint ventures, which represents 10,009 homes (31 December 2020: 10,685 homes).”
This should ensure that the FTSE 100 stock is able to continue paying out dividends, at least for the next year. This is also aided by the strong cash position, and the commitment to return excess cash to shareholders.
One risk here is the cladding provisions that need to be set aside. Although the company has put a pot to one side for this, any changes in Government policy or fresh actions could put a strain on the cash flow and reputation of the business.
Mining for dividends
The second FTSE 100 stock we like is Polymetal International (LSE:POLY). The mining company has seen the share price fall some 25% over the past year. This has helped to push the dividend yield higher, with it currently at 8.1%. Although we note this as a high risk option, the generous dividend yield offers a good offsetting reward for more adventurous investors.
We feel that the gold price is heading higher this year. My colleague ran through the technicals on gold, looking for $2,000, which can be read here. From a fundamental point of view, we like gold as a hedge against further Covid-19 variants, tensions with Russia, a China slowdown and other 2022 risks. The downside to our view is higher interest rates, which could see people cycle out of gold due to the lack of yield available.
The risk we see to buying Polymetal shares for passive income is the exposure to emerging market currencies. In normal operations, the business deals with the likes of the Russian Ruble and other eastern European currencies that are exceptionally volatile and can depreciate heavily.
Good FTSE 100 stock options
Overall, we like both FTSE 100 stocks for dividend income in 2022. Including both as options in an existing dividend portfolio helps to diversify risk further. If one of the above companies cuts the dividend per share, then the impact on the blended average dividend yield of the basket of stocks shouldn’t be overly hampered.
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