These 10 FTSE income stocks could generate £33,137 a year in dividends
The 10 FTSE 350 income stocks with the highest yields are currently offering returns of 9.4%-14.1%, with an average of 11.3%. This means a £20,000 investment spread equally across all of them would generate annual passive income of £2,260.
But reinvesting the dividends could generate better long-term returns. Using this approach, a £20,000 lump sum would grow to £290,676 in 25 years.
This assumes the annual return of 11.3% is maintained throughout the period and that all income is used to purchase more shares. If all goes to plan, after a quarter of a century, this 10-stock portfolio could be generating dividends of £33,137 a year.
| Stock | Yield (%) |
|---|---|
| Diversified Energy Company | 14.1 |
| Ithaca Energy | 13.0 |
| Harbour Energy | 12.8 |
| NextEnergy Solar Fund | 11.6 |
| Ashmore Group | 11.3 |
| Energean Oil & Gas | 10.8 |
| Foresight Solar Fund | 10.4 |
| TwentyFour Income Fund | 10.2 |
| GCP Infrastructure Investments | 9.5 |
| aberdeen Group | 9.4 |
| Average | 11.3 |
However, we must not get too carried away.
Buyer beware
Although there’s nothing wrong with the maths in my example, it pays to be careful when a stock offers an apparently high yield.
For example, even though Diversified Energy Company is top of the list, it was yielding over 30% in early 2024. Soon after, it cut its dividend by two-thirds. Although it’s still number one, this does illustrate that double-digit returns should be treated with caution.
Some experts claim that if a stock’s offering a return twice that of the 10-year gilt rate (currently 4.45%), it’s probably not sustainable. In fact, all of the stocks on my list would break this rule of thumb.
Also, my analysis ignores any movements (up or down) in share prices.
Something in common
I think it’s interesting that seven of the stocks have exposure to the energy sector.
Some of them operate in renewables where long-term contracts and relatively fixed costs ensure earnings are, generally speaking, steady and predictable.
However, this doesn’t apply to Harbour Energy (LSE:HBR). As the largest oil and gas producer in the North Sea, its profit is at the mercy of energy prices, which are often volatile.
And its near-13% yield is partly due to a share price that, on the back of a slump in oil prices, has fallen 43% since May 2024.
Other issues
I suspect investors also have concerns that the group faces an effective tax rate of 78% on its UK profit. That’s why, in 2024, it acquired the upstream assets of Wintershall Dea.
Although it hasn’t helped the share price, the deal has transformed the scale of the group. This is evident from Harbour Energy’s most recent trading update. For the first quarter of 2025, revenue was $2.8bn, compared to $0.9bn a year earlier.
The acquisition means it’s now operating in Norway — and other countries — where taxes are lower.
On 7 May, the group blamed the ‘windfall tax’ for its decision to cut 25% of the workforce at its headquarters in Aberdeen.
And these cost savings are expected to offset some of the impact of lower energy prices. This means free cash flow, in 2025, is forecast to be only $100m lower than the $1bn previously estimated. The annual dividend currently costs $455m.
Earnings should also be helped by an upwards revision in forecast production.
For these reasons, I suspect Harbour Energy’s yield will start to fall over the coming months. Not because of a cut in its dividend but due to a rising share price. On this basis, those looking for an income share with solid growth prospects could consider the stock.
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James Beard has positions in Harbour Energy Plc. The Motley Fool UK has recommended Foresight Solar Fund. 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.
