I’d put £76 a week into this top FTSE 100 stock for £500 a year in passive income

At FTSE 100 continues to flirt with an all-time high of 7,903.50 points, set again in 2018. But despite this elevated level, I think the UK blue-chip index still gives great value. It contains many stocks that I have the potential to pay regular and reliable passive income.

This is one of the FTSE 100 stalwarts that looks like a strong candidate for my current portfolio.

top performer

Defense contractor BAE system (LSE: BA.) is the best performing FTSE 100 stock in 2022. It has returned an incredible 55%. This increase was caused by the Russian invasion of Ukraine, which led to a significant increase in demand for the company’s military hardware offerings.

However, despite this increase, the stock still offers a healthy dividend yield of 3.1%. Of course, that’s below the FTSE 100’s average yield of 3.5%. But the company is in a strong financial position to continue raising its dividend from here. It has more than £2bn in cash sitting on the balance sheet and a bulging order book.

The company’s total payout this year is expected to be 26.5p per share. Even better, the dividend will rise to 28.3p next year. That will give a yield of 3.4%, as the situation.

I really expect the company’s dividend to increase for many years based on its growing order book. These defense contracts are spread naturally over several years, giving management visibility into future earnings.

Risk

Of course, this does not mean that the dividend cannot be cut by accident. Indeed, it happened in 2020 when the pandemic caused the defense giant to postpone its dividend. Another Covid outbreak could also disrupt operations again.

However, BAE Systems has increased its dividend payout nine times over the past 10 years. And it can continue to do so, as next year’s forecast dividend is covered twice by expected earnings.

So the payout seems safe to me, making this defensive stock a good choice to drip-feed money into a growing stream of passive income.

£500 per year in passive income

One BAE part is 849p, as I write. That means I need about 1,900 shares to generate £500 a year in passive income. That will cost me around £16,100.

Now, it’s obviously a pretty big sum of money. I can’t spend that kind of money right away. But that doesn’t mean I can’t buy a few shares a week and gradually find a way to that figure.

For example, if I buy nine shares of BAE every seven days, that will cost me £76 a week (depending on the situation). Which is clearly more affordable. And if I keep going every week for a year, I will get 468 shares. He will pay me £125 a year.

After more than four years, I have around 1,900 shares, which will pay me over £500 in annual passive income. If a company raises its dividend, passive income increases.

Of course, stock prices will never stop. There will be natural up-and-down gyrations of the stock market. But drip-feeding the money every week will smooth out this bump.

As always, the key ingredients for this are time, patience, and consistency.