I reckon this week’s dip is a great time to buy UK passive income stocks

My position is simple. I am building a portfolio of FTSE 100 stocks to generate a passive income for my retirement. Today’s stock market volatility looks like a great time to buy more of them.

This year has been bumpy for global stock markets, with far more downs than ups, especially in the US. The S&P 500 has crashed into bear market territory, falling 23.70% year to date.

I’m buying passive income stocks

The FTSE 100 has been relatively resilient, falling 6.87%, a fraction of that collapse. Half of that dip has come in the last few days, following Chancellor Kwasi Kwarteng’s misfiring mini-budget. While I’m worried about the state of the nation’s finances right now, I’m not worried about buying UK passive income stocks. In fact, I think this is a great opportunity to pick up more of them.

The FTSE 100 is packed with solid, dividend-paying companies. As inflation rockets, these have swung back into favour. A steady stream of shareholder payouts gives my portfolio partial protection against inflation. Today, the average yield across the FTSE 100 is 4.19%. That’s far better than cash, with any share price growth on top.

I am keen to buy house builder Persimmon, which yields a dizzying 19.47%, and Lloyds Banking Group, which yields 4.7%. After I take the plunge, I will re-invest their dividends straight back into my portfolio, to generate growth. When I retire, I will draw them as passive income, to top up my pensions.

Passive income shares look good value with the FTSE 100 trading at just 13.48 times earnings. Persimmon is even cheaper, trading at 4.96 times earnings, and Lloyds at 5.57. 

Another favourite stock of mine, Legal & General Group, currently yields 8.54% and is valued at just 6.83 times earnings. All three stocks have risks, and their shares have underperformed for years. Yet the reward should outweigh those risks, I believe.

The big risk with buying today is that this crisis will intensify, and the FTSE 100 could fall further. That won’t stop me investing for two reasons. First, equities can always fall, at any time. Just as they can rise at any time. That’s what stock markets do. If that stopped me, I’d never buy.

I’ll buy and I’ll hold FTSE 100 stocks

The second reason that I will still buy passive income shares today is that I plan to hold them for the long term. I’m talking 20 or 30 years, supposing I live that long. That timescale gives the index plenty of time to recover. If it does dip in the short run, hopefully I will have some cash to share, and can buy more stocks.

Dividends cannot be depended on. They can be cut at any time – Persimmon worries me on that front. I get round that by building a balanced portfolio of at least a dozen shares, with different risk profiles, and different yields. That should help ensure a smoother passive income when I retire. With luck, today’s troubles will be long forgotten when I finally stop working and draw it. But I’ll still benefit from today’s lower entry price.