March’s mini stock market crash has given investors a great opportunity to supercharge their passive income.
The London stock market is home to many top-quality dividend shares. And recent share price weakness has sent the dividend yields on many of these through the roof.
Here are two from the FTSE 100 that I feel merit a close look:
| Passive income share | Forward dividend yield |
|---|---|
| Legal & General (LSE:LGEN) | 9% |
| Taylor Wimpey (LSE:TW.) | 8.7% |
While cash rewards are never guaranteed, I’m optimistic that these dividend heroes will meet brokers’ healthy forecasts.
If I’m correct, a £20,000 lump sum investment across them will provide £1,770 in passive income this year alone. As time progresses, I’m expecting dividends on them to steadily increase as well.
Here’s why I think they’re worth serious consideration.
Legal & General
Legal & General is the third-highest-yielding share on the FTSE 100 today. But predicted dividends here are by no means ‘pie in the sky’ forecasts.
As a financial services company, its earnings are highly sensitive to broader economic conditions. And right now things are looking hugely uncertain as new trade tariffs put fresh strain on the global economy.
Yet I still believe Legal & General’s in great shape to keep growing dividends. This is thanks to its immense cash flows and rock-solid balance sheet.
Its Solvency II capital ratio, in fact, continues to strengthen despite tough trading conditions. This was 232% as of December, remaining more than twice the level that regulators require.
The firm’s financial robustness is underlined by its decision this week to launch a huge £500m share buyback programme.
In total, Legal & General is confident of returning around 40% of its £40bn+ market cap to investors over the next three years through a combination of dividends and stock repurchases.
I hold the Footsie firm in my own portfolio to generate long-term passive income. I’m confident dividends will remain substantial as an ageing global polulation drives demand for its retirement, protection, and wealth products sharply higher.
Taylor Wimpey
Like Legal & General, housebuilder Taylor Wimpey is highly sensitive to broader economic conditions. A sustained pickup in UK unemployment and weak consumer confidence could significantly dampen housing demand.
On balance, though, I’m hopeful that sales volumes and property prices will continue their recent recovery as interest rates fall. A blend of falling inflation and economic stress means the Bank of England is expected to cut rates a further two or three times this year alone.
The pace of the market pick-up following recent rate cuts has already been highly encouraging. Taylor Wimpey’s weekly net private sales rate was up 12% year on year — at 0.75 — between 1 January and 23 February. Remember, though, that upcoming Stamp Duty changes may impact future growth.
Yet even if profits disappoint, the builder has robust net cash (£564.8m as of December) it can deploy to help it continue paying juicy dividends.
I think Taylor Wimpey could be a lucrative long-term dividend stock, with rapid population growth driving demand for its newbuild properties.
This post was originally published on Motley Fool
