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At FTSE 100 is home to many companies that pay quality dividends. The index pays a higher collective average yield than most others around the world. For me, there is no better place to earn passive income.
Here’s one FTSE 100 titan I think is aiming for £1,000 a year in passive income.
Mining cash machine
Glencore (LSE: GLEN) is one of the world’s largest natural resources companies. The company produces and markets various metals and minerals, such as copper, cobalt, zinc, and nickel. It also markets aluminum and iron ore from third parties.
But more controversially, the company is also a huge producer of coal. This part of the business has boomed recently, because the price for fossil fuel rockets 70% last year alone. In fact, the world is rapidly consuming more coal than it has this year.
While this is not good for global warming (since coal releases more carbon dioxide than any other fuel source), it is good news for Glencore’s profits. In its half-year results announced in August, the company reported a cash profit of $18.9bn (£15.7bn). That’s more than double the previous year’s figure.
While this increase in earnings will not last forever, it means the mining giant is flush with cash to pay chunky dividends now.
A grand year in passive income
The dividend is expected to be 46p per share, as it remains. So with the share price at 553p today, that equates to a prospective dividend yield of around 8%. That is higher than the FTSE 100 average of 3.7%.
That means I need about 2,260 shares to generate £1,000 a year in passive income. It will cost me around £12,500.
Now, that’s a lot of money. I may not be able to afford that one. But if I drip-food £75 a week into the savings, I can gradually work my way to that figure.
Doing this method will take just three years to reach your target of £1,000 in annual passive income.
Of course, stock prices won’t be static for three years. But drip-feeding money in every week will smooth up and down nature.
Not without risk
Glencore is at the mercy of commodity prices to a large extent. No one knows what path they will take this year or the next. Dividends could be cut, which could impact the stock price.
That said, expected dividends are covered by anticipated earnings. The current dividend coverage is nearly three times that, which increases the likelihood that payouts will be made.
Over the long term, I am very bullish on the prospects of mining stocks. Many of the raw materials that Glencore produces (mainly copper and nickel) will play an important role in the world trying to reach net-zero by 2050.
In addition, the company has made a commitment to divest its portfolio of coal assets. Last month, they announced they would close 12 coal mines by 2035, in order to reduce emissions by 50% by that year.
I have put the stock on my watch list with the intention of taking a position in the next week.
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