The FTSE 100 multinational mining firm Glencore (LSE: GLEN) earned $256bn in revenue last year. That produced earnings of $19bn, of which $7.1bn is due to be paid back to shareholders as dividends. The company is extremely successful mining and trading natural resources for the world to use, and I could share in that success and earn a passive income if I bought a few shares.
I think a £1,000 a year return in the company is achievable. Here’s how I’d go about it.
Own a piece of the company
In my view, the best way to earn a passive income comes from investing in stocks. I’m not likely to start my own company, but I can own a small piece of one by picking up a few shares that will then give me an income.
With Glencore, I would receive dividend payouts twice a year. And with a company as large and reliable as the mining giant, I can predict what my future income would be from the shares I hold.
Holding a position in any stock comes with risk, of course. My shares could lose value, dividend payments are not guaranteed, and even the best-looking business can suffer from the unpredictability of the stock market.
A golden opportunity
I think right now is a golden opportunity for me to reach that £1,000 a year target quicker than ever.
With many investors spooked because of the SVB bank crisis, I see this as a great chance to pick up shares on the cheap. The FTSE 100 is down around 8% in the last month, for example.
In Glencore’s case, the firm is down 19% in 2023, and I can buy a single share in this huge corporation for only 439p.
Less than a fiver a share sounds cheap to me – putting the company at a price-to-earnings valuation of below four – and it’s pushed the dividend yield for the year up to 10.77%.
How I’d target £1,000 a year
A back-of-the-envelope calculation shows that a £9,285 sum would give me 2,115 shares in Glencore and an income of £1,000 a year. That’s a tidy amount straight away, and it could grow over time if I reinvested the returns back into this or other stocks.
A big caveat is that the 10.77% return is unusually high. If the return came down in the future, I’d need more investment to reach £1,000 a year. For example, a 7% return would need £14,285 of shares instead.
The reality is never quite so simple. Dividends often change, and the fortunes of a natural resources company can ebb and flow depending on what the price of copper or zinc is doing.
A good general strategy I like to follow is to look for good deals and try to save and invest what I can. I’m always adding to my portfolio, and it’s great to see the investments and income grow over time.
And the next time I have spare cash available to invest, I will look to open a position in Glencore to give myself a strong second income source.
The post I’d buy 2,115 shares of this stock for £1,000 a year in passive income appeared first on The Motley Fool UK.
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John Fieldsend 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.
