I’d invest £5,100 in this FTSE 100 stock for £200 in annual passive income

Every quarter, FTSE 100 stocks undergo a reshuffle. Depending on the market capitalization, the company can retain its position in London’s flagship index or face relegation to it FTSE 250. This can be a useful indicator of which stocks are doing well, and which are not.

I have looked at one company that was promoted to the FTSE 100 in January after a year outside the top division. Given its healthy 3.94% dividend yield, this stock can be a worthwhile addition to your passive income portfolio.

I am referring to the specialty chemical business Matthew Johnson (LSE: JMAT). Here’s how I invest in companies to target £200 in annual dividend income.

Dividends for passive income

As I write, Johnson Matthey’s share price is at £19.56. That’s a slight increase of 3% compared to where the stock traded a year ago.

To target £200 a year in passive income, with the current dividend yield, I would need to buy 260 shares. That will cost me a little under £5,100 – exactly, £5,085.60.

With that investment, I got £200.37 in annual dividend income.

However, it is important to remember that dividends are not guaranteed. Until the pandemic, the company had posted 32 consecutive years of dividend increases. That puts Johnson Matthey in the elite club of Dividend Aristocrats.

However, in 2020, the company produces a lower dividend, which shows the risk when investing for passive income. That said, the company continues to reward shareholders with distributions, albeit in the form of reduced payouts.

The pandemic presents unique challenges, and I am optimistic that Johnson Matthey can come back strong with an unbroken record of dividend growth in the future.

Mixed finance

The company produces emission catalysts for light and heavy vehicles. It also produces catalysts for the chemical industry and the oil and gas sector. As one of the world’s largest platinum refiners, Johnson Matthey uses platinum group metals for industrial products.

There were signs of weakness in the company’s half-year results to 30 September 2022. Reported revenue fell 14% over the period, although when precious metals are excluded, the figure rose 10%.

However, post-tax profit fell by 29% to £161m and earnings per share also fell from 117.1p to 88.2p. Dividends remained static and net debt increased by more than £270m to £963m.

The numbers may make for disappointing reading, but Johnson Matthey is confident about the future. The company expects to generate at least £4bn in cash from its Clean Air division by 2031 and more than £200m in sales from its Hydrogen Technologies arm by 2025.

Couple this with around £1bn in cumulative capital expenditure over the next three years and £150m in annual cost savings over the same period, and the case for long-term share price growth has merit.

Should I buy these FTSE 100 shares?

Some numbers in Johnson Matthey’s new half-year results concern me. However, the guidance for the future is positive and encouraging.

I’m waiting until the company’s full year results are released on May 25th before making an investment.

I expect the business to show great improvement in some metrics. If not and I have spare cash available, I will buy Johnson Matthey shares for a solid passive income stream.