I’d buy 6 shares a week of this FTSE 100 stock for £100 a month in passive income

FTSE 100 The dividend yield is 3.53%. The size of the result is not the only factor I look at, however. Shareholder distributions can be cut or suspended at any time, so I also like to see evidence that companies have maintained or increased payouts over a long period of time.

One Footsie Stock that fits the bill Diageo (LSE:DGE), which has consistently increased its dividend over the past decade.

Here’s how I invested in the drinks giant to target £1,200 in annual passive income.

A dividend aristocrat

Diageo is a dividend aristocrat. The company sports a 2.06% yield, which may not sound exciting, but I believe it is one of the most reliable passive income generators in the FTSE 100 index.

As I write, Diageo shares are trading at £37 each. To secure £100 in passive income every month, I need 1,575 shares. In total, this will cost £58,275.

That’s an awful lot of money. Buying all the stocks at once would require deeper pockets than mine, but that’s why I broke down my investment goals into manageable goals.

I am a long term investor. The preferred strategy is to buy and hold stocks for many years, ideally decades. So I’ll start with the more achievable goal of buying six shares a week for £222. To limit trading costs when buying small stocks, I use commission-free brokers like Free trade.

If I can maintain this for five years, I will eventually have 1,560 shares to my name. Reinvesting some of the dividends along the way will create a deficit with plenty of passive income to spare.

My calculations assume that the share price remains constant for five years to illustrate how it would generate double the income of a regular investment. This is unlikely in practice, and I expect share prices to fluctuate over time.

Diageo’s share price changes

Dividends are not the only reason I like Diageo. The company also has the potential for capital growth. It has performed well over the past half-decade, sending its share price up 44%.

The beverage manufacturer has a portfolio of more than 200 brands sold in more than 180 countries. Famous names included Johnny Walker, Guinnessand Baileys.

The company’s sales are spread across categories and price points. Increasingly, the focus is on higher-end opportunities including tequila, international whiskey, scotch, and gin.

Diageo’s corporate financial results report, Diageo’s annual report for 2022. Highlights include 18.2% growth in operating profit to £4,409m and a £281m increase in net cash from operating activities to £3,935m.

Strong cash flow is an important indicator of dividend sustainability. I am optimistic that the business can continue to generate stellar income if it continues to grow.

The current price-to-earnings (P/E) ratio is 26.43, which makes me worry that the stock could be expensive. However, by investing a regular amount, you can hopefully avoid the excessive impact of the downside volatility risk on the stock price.

My passive income portfolio

I am considering buying Diageo shares this year. I will wait until the company’s interim results on January 26 before investing.

If I like the numbers, I will buy Diageo shares along with other dividend stocks to form part of a diversified portfolio with the aim of securing a regular passive income stream.