£10k in cash savings earning peanuts? Considering these dividend stocks could mean a ton of passive income
UK interest rates have been coming down recently. As a result, the rates on savings accounts have been falling too. The good news is that itâs still possible to generate substantial passive income with dividend stocks. Hereâs a look at two UK stocks that offer chunky yields at present and could be worth considering as income investments today.
My favourite UK bank stock
First up, we have HSBC (LSE: HSBA). Itâs a global leader in the banking space.
This is my favourite UK banking stock (even though I donât own it personally today). I like it because itâs globally diversified and has exposure to high growth areas such as Asia and wealth management.
For the 2025 financial year, analysts expect HSBC to reward investors with dividends of around 67 cents per share. That translates to a yield of about 5.7% at todayâs share price and exchange rate (income of approx. £285 per year on a £5,000 investment).
Dividend coverage (the ratio of earnings per share to dividends per share) is expected to be around two. Thatâs healthy and indicates that thereâs a low chance of a dividend cut in the near term.
Itâs worth pointing out that banking can be a turbulent industry at times. So with a stock like this, investors need to expect some share price volatility.
If one is willing to hold the stock for five years, however (which is generally the minimum recommended time to own a stock), I think thereâs potential for solid total returns (dividend income and capital gains).
A very high yield
Next, we have M&G (LSE: MNG). Itâs a UK savings and investment company.
Itâs not the most exciting company in the world. But it has a good track record when it comes to paying dividends and it offers a high yield at present.
Indeed, for 2025, analysts expect M&G to reward investors with a payout of 20.6p per share. That translates to a yield of about 8.6%.
On a £5,000 investment, that works out at around £430 income per year. Dividend income is never guaranteed, however, and investors should note that the dividend coverage ratio here is a little on the low side at around 1.3 (signalling that thereâs a chance of a dividend cut at some stage).
Like HSBC, M&G operates in an industry that can be volatile at times. When financial markets get turbulent, the companyâs share price can swing around wildly as investors worry about future profitability.
This company has stood the test of time though, having been around for over 150 years. So, I think itâs worth considering as an income play.
The secret to investing for income
Itâs worth pointing out that when investing for income, itâs smart to own at least 15 different stocks. Owning just one or two is quite risky.
If one had £10,000 to deploy, it wouldnât be smart to put it all into just two stocks. This could lead to disappointing returns if one (or both) of the stocks experienced some problems.
Thankfully, there are lots of great dividend stocks on the London Stock Exchange today. If youâre looking for more investment ideas, youâve come to the right place.
The post £10k in cash savings earning peanuts? Considering these dividend stocks could mean a ton of passive income appeared first on The Motley Fool UK.
But hereâs another bargain investment that looks absurdly dirt-cheap:
Like buying £1 for 31p
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?
More reading
- 2 cheap FTSE 100 shares to consider buying in June
- 1 year ago I said this 9.8%-yielding FTSE income stock was due a bull run â was I right?
- A £10,000 investment in HSBC shares 10 years ago is now worth…
- Could the stock market create a second income higher than the average UK salary?
- £10,000 invested in HSBC shares 6 months ago is now worthâ¦
Edward Sheldon has positions in London Stock Exchange Group. The Motley Fool UK has recommended HSBC Holdings and M&g Plc. HSBC Holdings is an advertising partner of Motley Fool Money. 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.
