Without question, the UK stock market is (for me at least) the best place to go searching for high-yield dividend shares. Both the FTSE 100 and FTSE 250 — with their vast collection of financially-robust and resilient companies — can provide a great stream of passive income over time.
However, those who only buy one or two shares risk seeing their income evaporate if trading conditions get tougher. For investors who have £20,000 to put in a Stocks and Shares ISA annual allowance, splitting that equally across four stocks could be a more effective way to diversify.
Here’s an ISA portfolio I think could deliver a healthy long-term passive income. If everything goes to plan, it could eventually provide a £1,500 tax-free monthly extra income.
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?
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Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
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Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Top dividend shares
By looking across the whole FTSE 350, investors have hundreds of dividend-paying companies to choose from. Yet not all of them offer the high yields that could give me a decent second income income later on.
Here are four shares I think are worth considering today. Their forward dividend yields sail above the FTSE 350 average of 3.6%.
| Dividend share | Dividend growth | Dividend yield |
|---|---|---|
| Aviva (LSE:AV.) | 6% | 7.2% |
| Greencoat UK Wind | 4% | 9.5% |
| Assura | 3% | 7% |
| Phoenix Group | 3% | 9.6% |
The average dividend yield across these four stocks is 8.3%. But this isn’t the only benefit that this mini-portfolio provides.
With a mix of cyclical shares (financial services) and defensive stocks (renewable energy and real estate), it could boost an investor’s chances of making a large and stable second income across all points of the economic cycle.
A chunky passive income
Someone who invested £5,000 in each of these four shares today in an ISA would — if broker forecasts prove accurate — deliver an annual passive income of £1,660, based on that average 8.3% forward dividend yield.
That’s pretty good, I’m sure you’d agree. But the amount could be even greater if our investor left it to accrue in their ISA. After 30 years their portfolio would be worth £211,980, which would then deliver a monthly income of almost £1,500 (£1,466 to be precise).
This may be a conservative estimate as well. With strong business models and robust financial foundations, these shares could not only deliver growing dividends but also offer substantial share price appreciation.
But of course, it may also be over-optimistic as judging what may happen to individual companies and stocks over the course of three decades is impossible and things can go wrong as much as they can go right.
A FTSE 100 dividend hero
Aviva is a dividend share I actually own in my portfolio. I believe it’s one of the FTSE 100’s most attractive income shares today.
The financial services giant is a highly cash generative business, which gives it lots of ammunition to pay a large, growing dividend and embark on share repurchases. With plans to generate more that 70% of future operating profit from capital-light businesses, its cash flows could be spectacular further down the line.
Through a series of asset sales and extensive cost reductions, Aviva has strengthened its balance sheet and consistently increased its dividend since 2019. Although it dipped last year, the company’s Solvency II ratio still ended 2024 at 203%, more that double what’s required under financial regulations. This bodes well for dividends moving forwards.
High competition across its product lines is a constant threat to earnings. But I’m optimistic that Aviva can keep delivering impressive profits and cash flows as the market for retirement and wealth products rapidly grows.
