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If building a sustainable passive income is the goal in 2026, I think these two FTSE 100 names are worth considering when it comes to dividends.
British American Tobacco (LSE: BATS) and HSBC (LSE: HSBA) both have long histories of large and steady payouts, albeit operating in very different sectors that are impacted by different factors.
The case for British American Tobacco
It’s worth noting that British American Tobacco might not be everyone’s cup of tea given the ethical concerns tied to the tobacco industry. That’s a personal judgement investors need to make.
From an income perspective though, the stock continues to offer one of the most generous yields in the Footsie. As I write on 6 January, the stock has a dividend yield of 5.9%, which is comfortably above the broader index average.
That figure reflects decades of dependable cash generation and a strong commitment to shareholder returns. In fact, the company has lifted its dividend almost every year for over 20 years while also pushing ahead with a share buyback programme to boot.
In valuation terms, the company’s dependability does mean it trades at something of a premium. A price-to-earnings (P/E) ratio of 29 isn’t cheap, but it has proved itself as a reliable addition to many portfolios for decades now.
That said, there are risks that come with investing. Smoking rates in many developed countries continue to fall, and while the company has pushed into next-generation vaping and heated tobacco products, those markets come with their own regulatory headaches. Legal challenges haven’t gone away either and could weigh on future performance.
Is HSBC the key to a long-term passive income?
HSBC offers something different as a global diversified banking group with a strong presence across Asia, Europe and the Americas.
2025 was a good year for banking stocks and HSBC was no exception. The company’s share price climbed 54.9% in the last 12 months to 1,219p per share as I write. Like many of its peers, an environment of elevated interest rates and a strong enough economy helped to keep net interest income high.
However, this does mean the opposite is true and the bank has exposure to the ups and downs of the global economy. That includes risks linked to interest rates, loan defaults and broader financial market swings.
HSBC’s 4% dividend yield is lower than British American’s but still attractive within the Footsie. And importantly, HSBC has been working hard to reshape its operations, particularly in Asia, while also returning more capital to shareholders.
When it comes to valuation, banks are usually assessed using price-to-book (P/B) and P/E ratios. HSBC’s P/B sits at around 1.4, and its P/E is around 17. That looks slightly punchy to me compared to peers like Barclays (LSE: BARC) and NatWest (LSE:NWG), so it’s certainly not the cheapest dividend play on the market.
My verdict
For investors looking to boost passive income, both British American Tobacco and HSBC bring different strengths to the table.
As always with the investment game, the decision to buy will come down to personal preferences and the best fit for a diversified portfolio in the long run. However, I think both of these Footsie dividend stocks are worth considering for investors trying to build a steady passive income in 2026 and beyond.
