Can the FTSE 100 supercharge an investor’s passive income?
The ability to generate passive income from investments depends on the initial capital available. With sufficient existing capital, one could simply find some of the strongest-yielding stocks on the FTSE 100, and invest for a consistent stream of passive income right away. But for those who aren’t as fortunate, a compounding strategy over time may be necessary instead.
Nonetheless, investing in a depressed market has two specific benefits. Firstly, share prices and dividend yields are inversely correlated. In other words, when share prices fall, dividend yields go up. As such, investors may look to lock in higher dividend yields in beaten-down markets before the index pushes upwards. Nonetheless, it’s worth noting that very big yields can be a warning sign.
Likewise, the FTSE 100 is currently trading at a sizeable discount versus other indices and compared to its historic average. The index has traded at an average trailing P/E ratio of 14.9 over the last five years and 16.3x over the past decade.
On a sector-by-sector comparison, the UK’s main index remains considerably discounted versus its non-UK-listed peers. In turn, this infers that UK stocks are undervalued, and this is broadly supported by our own research. Therefore, the the FTSE 100 offers an opportunity for share price appreciation in addition to strong passive income over the long term.