The London Stock Exchange is a prime spot for investors seeking robust passive income streams. The FTSE 100 and FTSE 250 alone offer numerous high-yield opportunities and companies with strong track records of steady dividend growth.
Here’s how the dividend yields of the UK’s large- and mid-cap share indexes stack up against those on major overseas indexes:
| Share index | Forward dividend yield |
|---|---|
| FTSE 100 (UK) | 3.6% |
| FTSE 250 (UK) | 3.5% |
| S&P 500 (US) | 1.3% |
| Dow Jones Industrial Average (US) | 1.9% |
| DAX (Germany) | 1.8% |
| CAC 40 (France) | 2.7% |
| Nikkei 225 (Japan) | 1.9% |
These numbers are impressive. But successful passive income investing is about more than choosing the biggest-paying shares. Finding reliable dividend growers is as important as digging out shares with above-average dividend yields.
Not only does a growing cash reward helps individuals to offset the problem of inflation. Focusing blindly on yield can leave investors exposed to companies with weak balance sheets and/or potential earnings problems. These are classic dividend traps that individuals should try to avoid.
Two dividend shares
With this in mind, here are two great dividend growth shares to consider today.
TBC Bank
Low market penetration and robust economic conditions are giving TBC Bank (LSE:TBCG) the sort of earnings growth that UK banks like Lloyds can only dream of. This in turn has lit a fire under dividends.
TBC is one of the largest financial services providers in Eurasia. It has sprawling operations in Georgia and Uzbekistan, two countries experiencing strong economic growth and a subsequent jump in consumer demand.
To give you a flavour, the bank saw its loan book rise 14.2% in its core Georgian operation over the course of 2024.
City analysts think TBC’s earnings will dip in 2025. But a robust long-term outlook, combined with the bank’s well capitalised balance sheet, mean dividends are tipped to keep rising regardless.
Its CET1 capital ratio, a measure of solvency, was 16.8% as of December, well above regulatory requirements.
Predictions of further dividend growth this year mean the yield on TBC shares is a healthy 6.2%. Be aware, however, that competition from regional giant Lion Finance remains a significant threat to future returns.
City of London Investment Trust
Shares-based trusts like the City of London Investment Trust (LSE:CTY) can fall during stock market slumps. But their diversified approach means that, over a long time horizon, they can be a great way to balance risk and make a decent return.
This particular trust has been an especially lucrative one for dividend investors. This is because annual payouts here have grown for 58 straight years, the best record of any UK-listed investment trust.
Analysts expect this proud record to continue, too, despite the threat of resurgent inflation and trade tariffs. I’m not surprised by this bullish view, either, given the trust’s reslience to other adverse events (including wars, pandemics, banking collapses, and sovereign debt crises).
This means City of London carries a strong 4.8% dividend yield for 2025.
With around 80 companies in its portfolio — and a commitment to have 60% or more invested in large-cap companies — this trust offers an attractive blend of stability and growth potential. I think low-risk investors who are targeting a passive income should take a closer look.
