Making a passive income from UK shares became significantly more challenging as a result of the 2020 stock market crash. In response to an uncertain operating environment caused by the pandemic, over half of all FTSE 100 shares cut, postponed, or cancelled their dividends.
Despite this, UK stocks can still offer a relatively high income opportunity compared to other popular assets. Their potential to deliver growth in an improving economic environment could lead to further appeal from an income perspective over the coming years.
A high passive income from UK shares
Many UK shares now offer less impressive passive income prospects than they did a year ago. But it’s still possible to build a worthwhile dividend portfolio from FTSE 350 stocks. In fact, obtaining a portfolio yield in excess of 4% from a broad range of businesses is unlikely to prove especially challenging at the present time.
After all, the stock market continues to trade below its level from a year ago. As such, many companies have higher yields than they have done in recent years.
By contrast, making a generous income return from other assets may prove to be far more challenging. For example, low interest rates mean that obtaining a passive income return that’s above 1% from cash savings may be difficult.
Meanwhile, bonds have risen in price so that their yields are also at exceptionally low levels in many cases. Cash and bonds may even struggle to provide a rise in spending power over the long run. So that could also have a detrimental impact on an individual’s financial prospects.
Dividend growth opportunities
As well as a relatively high passive income, UK shares also offer the potential for dividend growth in the long run. Clearly, no economic or stock market recovery is ever guaranteed. There are currently high risks that could mean there’s a failure to post rising profitability and dividends across a range of FTSE 350 stocks and sectors.
However, the past performance of the economy suggests a recovery is likely to take place in the coming years. Measures such as a vaccine rollout, monetary policy stimulus and a likely end to lockdown restrictions could catalyse the UK and global economies in the long run.
The result of this may be rising profitability and higher dividends in the long term. And that should have a positive impact on an individual’s income prospects.
Higher risks from UK stocks
Of course, UK shares are a higher-risk means of obtaining a passive income than other assets such as cash and bonds. There’s a threat of capital loss, as well as no guarantee that dividends will be paid in future.
However, with the difference in return being relatively wide between equities and other income-producing assets, the potential rewards could be worth the additional risk on a long-term view.
