These 2 UK shares produce powerful passive income!

While many FTSE 100 companies pay generous passive income to their shareholders, these two stocks offer huge dividend yields.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A young black man makes the symbol of a peace sign with two fingers

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Earlier today, I was studying a table of FTSE 100 shares paying the highest passive income. Two of these were tobacco stocks, which my wife won’t allow us to own. Of the remaining eight shares, we own six in our value/dividend/income portfolio.

FTSE 100 stocks for passive income

All 10 of these high-yielding shares offer cash yields above 8% a year. Of the four stocks paying the highest passive income, we own three (two of which I discuss below).

Of course, shares are much riskier than cash deposits, plus table-topping savings accounts pay 5%+ yearly interest before tax. But I aim to invest in undervalued shares to generate higher income from dividends, plus long-term capital gains.

Should you invest £1,000 in Gensource Potash Corporation right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Gensource Potash Corporation made the list?

See the 6 stocks

Dividend share #1: Phoenix Group Holdings

Phoenix Group Holdings (LSE: PHNX) shares offer the highest passive income among FTSE 100 stocks. This financial firm buys and runs off unwanted pension and insurance funds. My wife and I bought Phoenix shares for 544.4p each in August.

By managing these financial assets more efficiently, Phoenix generates healthy earnings to pass on in dividends. But falling financial markets have depressed its share price to bargain-basement levels.

With the shares close to their 52-week lows, the dividend yield has soared to 11.7% a year. Yet Phoenix has enough spare capital on its balance sheet to meet dividends for at least the next two years.

Today, Phoenix shares trade at 442.9p, valuing the group at £4.4bn. If I were a mega-billionaire, I would gladly buy this business outright. Sure, I’d expect a rocky ride as markets oscillate, but I’d also expect to make an outrageous fortune from this trade.

Summary for Phoenix Group Holdings
Share price442.9p
52-week low438.9p
52-week high647p
One-year change*-19.4%*
Five-year change*-25.1%*
*These figures exclude Phoenix’s hefty cash dividends.

Income stock #2: M&G

Shares in asset manager M&G (LSE: MNG) offer the second-highest passive income among FTSE 100 stocks. My wife and I bought this stock at 199.6p in August.

As with Phoenix, M&G’s valuation been beaten down lately, driven lower by weakening financial markets. But like Phoenix’s, I expect M&G’s share price to rise from the ashes as markets rebound.

Thanks to stronger earnings, M&G recently boosted its interim dividend by 4.8% to 6.5p, from 6.2p a year earlier. And it’s for this steadily rising passive income that my wife and I bought this high-yielding stock.

At the current share price of 194p, M&G is valued at under £4.6bn. Also, recent share-price weakness has boosted its dividend yield to 10.3% a year, the FTSE 100’s second-highest. I’d gladly buy more M&G shares today, if had the cash to spare.

Finally, the future of both of these financial firms is heavily dependent on asset prices. If markets go into meltdown again — as they did in 2022 — then share prices could fall even further. However, I’d be a big buyer at much lower price levels!

Summary for M&G
Share price194p
52-week low168.35p
52-week high229.9p
One-year change*+7.9%
Change since October 2019 flotation*-11.8%
*Excluding dividends

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D’Arcy has an economic interest in M&G and Phoenix Group Holdings shares. The Motley Fool UK has recommended M&G. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Are Tesco shares a screaming buy after sinking to 9-month lows?

Tesco shares continue to experience price weakness as signs of mounting competition grow. But is it now too cheap to…

Read more »

Investing Articles

Down 31%! 1 top growth stock to consider at $10 for a Stocks and Shares ISA

This high-quality stock has pulled back sharply since November, making it a possible candidate for a growth-oriented Stocks and Shares…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

Down 28% in 8 months, is AstraZeneca’s share price too cheap for me to pass up right now?

AstraZeneca’s share price has fallen a long way from its September high, but this may mean an opportunity for me…

Read more »

Investing Articles

Is April a great time to start investing?

Our writer spotlights a top-tier tech stock that has sold off recently, making it worthy of consideration for someone ready…

Read more »

Investing Articles

1 beaten down dividend stock investors could consider for passive income

Our writer Ken Hall takes a look at one under-pressure mining giant that should be on investors' radars as a…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

3 FTSE 100 investment trusts to consider for a new ISA in 2025

It's a new tax year and time to dust off that old ISA. Here are three FTSE 100 investment trusts…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Is there still time to pick up Nvidia stock cheaply?

The Nvidia stock price has just had a scary week. But here's why I expect that should have very little…

Read more »