The FTSE 100 index is full of dividend gems right now. The stock with the highest dividend yield, Evraz, has huge returns of 16%. And if I consider special dividends, it has been even better. We have a winner in Tesco, with a yield of almost 21% last year! But here is the catch. I cannot be sure if I could continue to earn high dividends from these stocks. In the case of Tesco, that is obvious. Its last big payout was a special one-time dividend, which bumped up its yield. But even in the case of Evraz, the future looks a bit shaky to me. I mean, we are expecting a slowdown in commodities this year. So it follows that its dividends could be slashed.
A FTSE 100 stock for reliable passive income
If I would like to earn a reliable passive income for a long time, I think it would be a good idea to consider stocks that are more likely to give me continuous returns rather than big one-off payouts. And this holds even if their current dividend yield is underwhelming. Over the years, the dividends could keep rising and so would the dividend yield on my initial investment, which is nothing but the dividend amount as a percentage of the share price.
Take the case of London Stock Exchange (LSE: LSEG). The stock has a present yield of just 1%, which is significantly below that of the average FTSE 100 stock at 3.4%. However, if I had bought the stock 10 years ago, the dividend yield on my investment would be a much bigger 9.5% today. And that gives me solid real returns even accounting for the 4% expected inflation level for 2022 in the UK.
London Stock Exchange’s meteoric share price rise
Moreover, LSE is a very good growth stock. In the last 10 years, its share price has risen by almost 10 times. And this is even after the fact that over the past year, the stock has tumbled fast. Of course, it goes without saying that past growth in the stock price might not indicate what happens in the future. This is especially true of the stock right now. Investors are jittery after its massive acquisition of data analytics provider Refinitiv, which has also led to a decline in its price.
But at the same time, I cannot overlook the fact that London Stock Exchange has not just performed well in terms of its share price increase, but its financial performance has been largely good over time. This gives me confidence, because it shows a company that knows how to grow. And while there is no doubt that I would like to keep a watch on how the Refinitiv acquisition works out, the company’s management has earned my faith as an investor because of its past performance.
What I’d do
The FTSE 100 stock has long been on my investing wishlist, and 2022 is the year when I intend to make it part of my portfolio, both to earn a passive income and for growth in my capital.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
