My favorite FTSE 100 passive income shares that are keeping the Christmas coffers full

‘Tis the season to be cheerful… and financially savvy. As Christmas approaches, I’m glad I have a passive income stream to cover my holiday expenses. I’m not one to pinch pennies, I want to make sure my treasury has enough cash in it.

But what is my trick to achieve this coveted goal?

Passive income generally refers to regular income that is generated without constant involvement or the need for daily management. In other words, it’s the kind of income that can be earned while you sleep.

Here I describe some practical and proven ways to earn this kind of income by investing in stocks. Certain types of stocks suit this strategy better than others, but the key is a diverse portfolio focused on stable, long-term profits.

Keep costs low

One way to give things a boost this Christmas is with an ISA. No, not a skating adventure – an individual savings account. Immediately Stocks and Shares ISAprivate individuals can invest up to € 20,000 per year tax-free!

The new UK budget announced last month increased capital gains tax (CGT) from 10% to 18%, so an ISA is now more attractive than ever!

Please note that tax treatment depends on each customer’s individual circumstances and may be subject to change in the future. The content of this article is for informational purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Stock picking like a pro

With an ISA ready to fill with Christmas goodies, it’s time to choose the best income shares.

For those interested in passive income, dividend stocks can be very attractive. These are shares of companies that pay out part of their profits to shareholders on a regular basis, usually quarterly. The percentage paid is called a yield.

This contributes to a predictable income stream. By reinvesting the dividends, the value of the portfolio can grow exponentially through the miracle of compounding returns.

Some sectors tend to be more reliable in terms of dividends. For example, utilities, consumer staples and certain financial institutions are known for their consistent dividend payments. Another popular option is dividend-paying Exchange Traded Funds (ETFs), which offer exposure to multiple funds dividend-paying companies and ensure diversification.

However, not all dividends are equal. Higher returns can be attractive, but also risky if the company’s financial health is shaky. I look for companies with a strong track record of maintaining (or growing) dividends, as these are likely to be more reliable sources of income.

A share to make Santa Claus proud

My top stock pick for this Christmas would be Diageo (LSE: DGE). As a multinational beverage giant, it is an important part of many income portfolios, especially those seeking exposure to the consumer goods sector. It is known for its high-quality, recognizable brands that often sell well during the holidays. Think Johnny Walker, Guinness And Tanqueray.

However, its focus on premium brands limits its reach in more price-sensitive markets where consumers may prefer to avoid high prices. Following inflation during the pandemic, the company suffered losses after a decline in sales of its premium rum brands in Latin America and the Caribbean. This shows the sensitivity of the share to economic downturns.

With 37 years of consecutive dividend increases, Diageo is considered a Dividend Aristocrat. Dividends have grown by 5.5% per year over the past fifteen years, from 21 pence per share to over 80 pence. Yes, the price has fallen 37% in the last two years, but with inflation falling, I expect it to recover quickly.

I might even consider buying myself some more shares as an early Christmas present!