All it takes is £10,175 in these 3 dividend shares to target £1,000 in passive income per year

Ben McPoland highlights three UK dividend shares that are sporting incredible yields between 9.4% and 10.5% for this financial year.

| 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.

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.

There’s a fair-sized crop of UK dividend stocks offering almighty yields these days. In fact, if I were to stick just over 10 grand into this select trio of them, I could bag a £1k yearly passive income stream.

The first stock I’d go for is Legal & General (LSE: LGEN). Its lip-smacking 9.4% forward yield makes it one of the FTSE 100‘s highest.

Created with Highcharts 11.4.3Legal & General Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL6 Sep 20196 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Perhaps unsurprisingly then, Legal & General was the favourite stock among Fidelity ISA investors in August as they fled richly-valued technology shares. It was the most popular stock among SIPP investors too.

Should you invest £1,000 in Legal & General 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 Legal & General made the list?

See the 6 stocks

With its cheap valuation and massive yield, it’s easy to see why. Plus, the insurer’s balance sheet is in excellent shape and it’s committed to continue increasing future dividends.

A recession is a risk for the firm, as is a continuation of inflation and high interest rates. In the longer term though, I see a steadily ageing population benefiting Legal & General, given its expertise in pensions.

M&G

Next up is savings and investments provider M&G (LSE: MNG). It’s carrying a mammoth 9.6% forecast yield for this year.

Created with Highcharts 11.4.3M&g Plc PriceZoom1M3M6MYTD1Y5Y10YALL6 Sep 20196 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

The asset manager was spun off from Prudential in 2019 when the insurer went all-in on Asia. The share price has gone nowhere over this time while the dividends have increased — a recipe for a high yield.

Yet M&G has been doing fine. In 2023, adjusted operating profit before tax rose 27.5% to £797m. In the first half of 2024, it fell 4% to £375m, but this was higher than analysts’ consensus forecast of £355m.

One risk to bear in mind is the rise of passive investing, which could hamper the active fund manager’s long-term growth. Also, significant market volatility can hit its revenue, performance, and client base.

Reassuringly though, long-term fund performance has been excellent. As of June, 62% of its mutual funds ranked in the upper two performance quartiles over three years and 66% over five years.

Given the income bonanza on offer, I’d consider buying this stock if I were looking for ultra-high yields.

NextEnergy Solar Fund

Last but certainly not least, we have NextEnergy Solar Fund (LSE: NESF). This FTSE 250 renewable energy investment trust is sporting a mouthwatering 10.5% forward yield!

Created with Highcharts 11.4.3NextEnergy Solar Fund PriceZoom1M3M6MYTD1Y5Y10YALL13 Sep 201913 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

The fund has a portfolio of 103 solar assets across the UK and Italy, enough to power the equivalent of 301,000 homes for 12 months. Last year, it increased the dividend by 11% to 8.35p per share.

However, the market is worried about the firm’s debt levels. At the end of March, this stood at £338m. In a high rate environment, this adds risk to the dividend’s sustainability.

To improve its balance sheet, it has sold off a couple of assets at a premium to their holding values. That’s encouraging, but I’d say this is the riskiest of the three.

Turning £10k into passive income

No dividend is assured, just as individual share prices don’t always rise. But by building a well-rounded income portfolio, starting with these three ultra-high yielders, I could offset the risk of any single cut.

The average yield for this trio is a huge 9.83%. This means a £10,175 investment would generate £1k in passive income per year. And I’d still have almost 50% of my £20k ISA allowance left to buy other shares!

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Ben McPoland has positions in Legal & General Group Plc and Prudential Plc. The Motley Fool UK has recommended M&g Plc and Prudential Plc. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

One English pound placed on a graph to represent an economic down turn
Investing Articles

The FTSE 100 is riding high – time to buy?

Christopher Ruane explains why he continues to hunt for bargain FTSE 100 shares to buy even after the blue-chip index…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s how much an ISA investor needs to put away to aim for a million

Harvey Jones looks at how long it would take an investor to potentially build a million pound portfolio, and says…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Here’s why I think a SIPP might be better to build a £1m portfolio than a Stocks and Shares ISA

Our writer lays out three advantages a self-invested personal pension (SIPP) can have over an ISA when it comes to…

Read more »

US Stock

£10,000 invested in NIO stock a month ago is already worth…

Jon Smith flags the short-term pop in NIO stock and outlines some of the reasons behind the move, with an…

Read more »

Investing Articles

£10,000 invested in Nvidia stock 1 month ago is now worth…

The Nvidia share price hasn't done well in 2025 so far, and this writer thinks investors considering the S&P 500…

Read more »

Investing Articles

£900 is enough to start investing in March!

Ben McPoland looks at an out-of-favour FTSE 100 stock that might be worth considering for someone who's ready to start…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 8% today after a profits warning, is the B&M share price now as cheap as its products?

It’s no surprise B&M's share price reacted badly to today's outlook. But is this an opportunity for investors to bag…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Down 60% this month, is FTSE 250 stock John Wood Group worth a look?

FTSE 250 stock John Wood Group has been crushed in recent weeks. Could this be a major opportunity for long-term…

Read more »