Investing in established blue-chip FTSE 100 companies with strong dividend track records remains one of the most widely used strategies for generating passive income.
Spreading £10,000 evenly across five carefully selected FTSE 100 shares could deliver an average yield of 5.9%, equating to £590 in passive income per year.
No dividend is ever guaranteed to last, even at a FTSE 100 company with a long track record behind it, making diversification across sectors essential.
Among consumer goods companies, British American Tobacco stands out with a 6% yield, double the broader FTSE 100 average, and the company aims to keep growing its payout per share annually.
Its premium brands give it meaningful pricing power, though ongoing falls in cigarette use remain a genuine risk to both revenues and profits over the longer term.
Reckitt Benckiser, maker of household brand Vanish, has seen its share price fall 15% over the past five years, a painful contrast to the wider FTSE 100 index rising 52% over the same period.
Despite that underperformance, the company offers a 4.3% yield, and its premium brand portfolio and proven business model could help support the dividend going forward.
Reckitt has faced headwinds from a disastrous nutrition formula acquisition in previous years, which continues to represent a risk to overall financial performance.
In the financial services sector, insurer Aviva yields 5.7%, and since a dividend cut in 2020, it has grown its payout considerably while aiming to continue doing so in future years.
Aviva holds a market-leading position, though price competition from smaller rivals squeezing profit margins remains an ongoing risk investors should factor into their thinking.
Asset manager M&G (LSE: MNG) yields 5.9% and recently announced an interim dividend of 6.8p per share, a modest increase on last year’s interim payment of 6.7p per share.
M&G’s share price has grown 35% over the past year, far outstripping recent dividend growth, though the yield remains close to double the index average and the company aims to keep growing its payout annually.
A key concern for M&G in recent years has been client outflows, but its most recent interim results showed net flows from the company’s open business were positive, at £2.4bn.
Rounding out the five is Legal & General, which carries the highest yield of any FTSE 100 share at 7.6%, supported by a business model proven to be highly cash generative.
One risk worth noting at Legal & General is that choppy market conditions could prompt investors to withdraw funds, which would place pressure on profits and potentially the dividend itself.