Which of the top 10 passive income stocks in the FTSE 100 are the best?

The most popular method for selecting passive income stocks is to compare yields.

The table below shows the 10 largest players on the market FTSE100.

Warehouse	Give (%)
Vodafon	10/17
M&G	9.55
Feniks Group	9.41
Legal and general information	9/12
RioTinto	8.98
British-American tobacco	8.56
HSBC	7.28
Aviva	7/07
Imperial Brands	6.84
Schroders	6/16

But which one is the best? In other words, which one is most likely to maintain its dividend?

Buyer beware

The first thing to note is that the list should be approached with caution.

The information is compiled based on amounts paid in the last 12 months. However, we know this Vodafon plans to reduce payout by 50% this year.

It is also important to take into account one-off events. in June HSBC paid a special dividend of $0.21 in connection with the sale of its Canadian operations. It is unlikely that this will happen again in the next 12 months.

A company with unstable earnings is likely to pay irregular dividends. RioTinto is exposed to international commodity prices, which means its return to shareholders is almost impossible to predict.

Looking back

Since dividends are never guaranteed – and no one can see into the future – history is sometimes the only (albeit flawed) way to determine their reliability.

Looking at the five financial services companies in the top ten, M&G became an independent operation in 2019. In my opinion, this is too short a period to confirm any regularity.

As the table below shows, there has been no clear trend in dividend payments over the past five years Aviva AND Schroders.

Year	Aviva (pence per share)	Schroders (pence per share)
2019	9.50	114.00
2020	27.00	114.00
2021	May 22	122.00
2022	31.00	52.00
2023	33.40	9.50 p.m

Both Feniks Group AND Legal and general information they are more reliable. Over the past 25 years, the latter has only cut its dividend during the global financial crisis.

While I would need to do more research before purchasing any of these, at first glance they seem excellent.

Are you going up in smoke?

Tobacco companies have a long history of paying significant dividends. This is because their high-margin, cheap-to-produce products bring huge profits.

Actually, British-American tobacco (LSE:BAT) qualifies as a dividend aristocrat because it has increased its payout every year for a quarter of a century.

However, as restrictions on the sale of cigarettes increase, both British American Tobacco and Imperial Brands are expanding their offer to include vaporizers and other non-flammable alternatives.

However, they have a long way to go before they generate the same level of revenue and profits as traditional tobacco products.

In the six months ending June 30, 2024, British American New Category generated 13.2% of revenue and 2.3% of operating profit. In the six months ended March 31, 2024, Imperial Brands’ next-generation products generated losses and accounted for 1.6% of turnover.

However, governments around the world are placing restrictions on these so-called “reduced risk” products. They are also more expensive to make, which will reduce the level of excess cash available to shareholders.

But for now, cigarette sales generate a lot of cash. In 2024, British American Tobacco expects to convert 90% of adjusted operating profit to operating cash flow.

The irony is that in my opinion these are the best dividend stocks in the top 10 that I wouldn’t want to buy.

This is because I am a long-term investor and, in my opinion, there will eventually be a tipping point where the value of cash generated from traditional cigarette sales will decline more rapidly than the growth from new products. Its generous and reliable dividend will then be at risk.