I’m always on the hunt for good places to put my money. I don’t have an unlimited stream of cash, but when I do have spare funds, my focus is on further income generation. So, investing in FTSE stocks that pay out dividends is a natural fit for what I’m trying to achieve. Here’s one particular stock that I feel ticks the box.
The FTSE stock in my headlights
The company I like is Kingfisher (LSE:KGF). The FTSE 100 stalwart has a dividend yield of 5.95%, with the share price down 35% over the past year.
Let’s address the fall to begin with. A good proportion of this (16%) has occured in just the past three months. This ties in with broader concerns in the market around high inflation and how consumers are feeling the squeeze on how they spend their money.
This negatively impacts Kingfisher because it sells directly to the public. It owns DIY store operators such as B&Q and Screwfix. It has the double whammy of lower customer demand and also lower profit margins/higher prices due to inflation.
I accept the mix isn’t ideal, but this doesn’t put me off buying the stock for income. The lower share price allows me to benefit from a higher dividend yield. Assuming the dividend per share remains the same, a fall in the share price raises the yield.
Further, I think the company will do better over the next six-to-12 months even if the UK economy struggles. I think we could see a reversion to pandemic behaviour when people look to complete DIY projects themselves. This won’t be due to lockdowns, but rather to save cash on paying a professional to do that job.
Working through the numbers
From an income perspective, I usually start by thinking how much I want to earn over the course of a year. The annual figure is the starting point, as the frequency and timing of dividend payments throughout the year differs from firm to firm.
For Kingfisher, it usually pays an interim and a final dividend in a year. This totalled 12.4p per share over the past year. If I allocate £2,000 to the stock, I’d be able to buy 960 shares, using the current share price. This would mean that I’d get £119.04 over the course of the year.
Currently, I don’t have £2,000 to allocate to this stock. What I’m going to do instead is invest £300 a month and build up to earning the passive income. I accept that the share price each month could be different to what it is now. However, this works both ways. It might be lower, allowing me to benefit from a higher yield. Or it might have jumped, in which case my earning potential falls for that month.
Either way, I think it’s a sustainable way of me getting exposure to a downtrodden FTSE 100 stock that continues to pay out generous levels of dividends. On that basis, I’m looking to start investing next month.