Annual inflation rose to an all-time high of 5.4% in December. And now experts are warning the public of further price hikes in the coming months. Rising food and energy bills are a huge burden and investors are being affected by subsequent market fluctuations as well. In times like these, I have always turned to passive income options in the FTSE 100 to boost my earnings. Although dividends are no magic solution to overcome rising prices, they help stretch my monthly budget. And I have identified two shares offering big yields that could improve my passive income and alleviate some inflation concerns.
Mammoth 15%+ yield
The first company I’m looking at to make a £1,000 investment today is FTSE 100 miner Evraz (LSE: EVR). The company is one of the largest producers of steel in the world but also has large reserves of coal, iron ore and vanadium.
I am looking at Evraz primarily for the 15.5% dividend yield, which sounds too good to be true. I am wary of a value trap when it comes to such a high-yield stock, but Evraz’s performance last year was strong. Apart from 2020, a year marred by Covid, it has managed to pay out double-digit yields since 2017 at an average of nearly 12%.
It is important to note that the FTSE 100 miner has cut its yield three times in the last seven years (including 2020) and the current yield is covered only 1.3 times by earnings, which is a little tight for my liking. Plus analysts expect earnings to drop slightly as the demand for iron ore stabilises in 2022. Evraz is also battling increased taxation on its operations in Russia, which could affect profits.
But going by recent financials, the company is healthy right now and I do not expect the current yield to fall to 2020’s lows of 9.6%. Increasing energy prices could also bump up coal prices, which will benefit the commodities company. The company expects payouts to continue in 2022 given the strong fourth quarter 2021 predictions. This is why I am considering a £1,000 investment in Evraz shares today.
Finance stock
Asset manager M&G (LSE: MNG) offers a dividend yield of 8.7% at its current share price of 210p. This is higher than the FTSE 100 average of 3.4%, making it a strong passive income option for my portfolio.
I expect a lot of turbulence in the market in 2022. And I know that turbulence brings in new investors, which could benefit M&G in the long run. In fact, the company operates on a lean business model with a large portion of its earnings coming in the form of recurring subscription payments and commissions on executed trades.
Were I looking for shares that also offer growth potential, M&G might not be the right pick for me. Since its split from Prudential and direct listing in October 2019, returns stand at a dismal -6.7%. Also, M&G operates in a very competitive sector and could lose out to major players like Legal & General.
However, the board has reiterated its stance on increasing shareholder payouts in the coming years. And barring any major financial collapses, I think the company is well placed to deliver on this. I would buy it at the moment.
The post How I’d invest £1,000 in the FTSE 100 for passive income in 2022 appeared first on The Motley Fool UK.
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Suraj Radhakrishnan 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.
