I look to FTSE 100 stocks for passive income opportunities to make my money work hard. Unfortunately, many firms have cut dividends since last year’s market crash. But there’s one stock, National Grid (LSE:NG), that I think is a great passive income opportunity for my portfolio. NG’s dividend yield is over 5%.
FTSE 100 opportunity
The average yield for a FTSE 100 company is 3%. Keep in mind that a higher yield isn’t always a good thing. A high dividend yield might indicate a business in distress. The yield could be high because the company’s shares have fallen in response to financial troubles, and the struggling company hasn’t cut its dividend yet.
I class NG as a defensive stock. It possesses an enviable position at the heart of the UK’s energy ecosystem. NG owns the electricity transmission network in England and Wales. Further to this, it owns and operates the high-pressure gas transmission system in Great Britain too.
NG’s current dividend policy aims to “increase dividend per share by at least RPI for the foreseeable future.” Not many FTSE 100 firms make such a bold and ambitious claim like this. I feel NG can achieve it, however.
As I write this, NG’s yield is a juicy 5.7%. Analysts forecast this dividend yield based on 49.5p per share, which is an increase from the 48.57p paid out in March 2020. Of course, forecasts are not guaranteed and can change based on new developments. But NG’s policy of raising its dividend per share by the retail price index (RPI) makes me believe that its dividend yield could be 6%-plus later this year. If this happens, I would class it as one of the best FTSE 100 dividends, and it will certainly be a top passive income stock in my eyes.
The NG share price is currently trading 16% lower than this time last year. Based on its defensive ability, the fact that it’s price has not reached or surpassed pre-crash levels is surprising. In fact, NG’s market crash low was 799p per share in March 2020. Nearly 11 months later and it has increased by less than 8%. This is where I feel an opportunity lies in picking up dirt cheap shares to help make a passive income.
Risk but potential for passive income
Utilities companies like NG aren’t completely without pitfalls and risks. NG is heavily regulated and there is always the threat of regulatory action. In addition to this, there is the threat of nationalisation in the background too. Furthermore, the power grid operator has to contend with huge capital expenditure bills. These can affect income, performance, and potentially even investment viability too.
Nevertheless, I believe NG presents an excellent opportunity for me to make a passive income. It possesses solid defensive capabilities. At current levels I believe it is cheap too.
Away from the FTSE 100, here is a FTSE AIM stock I really like right now too.