Up to £1,711 a year in passive income from £20k and just 3 FTSE 100 shares? It’s possible

As a veteran investor, I tend to buy and hold shares for many years. Also, I aim to buy value shares — stocks that seem undervalued to me. And to boost my family portfolio’s passive income, I own shares with market-beating dividend yields.

Furthermore, I often find plenty of cheap and high-dividend shares in the UK’s FTSE 100 index and its cousin, the mid-cap FTSE 250. My goal by owning these and other stocks is to generate capital gains (profits from selling shares), backed up with regular infusions of cash from dividends.

Three dividend dynamos

For example, here are three FTSE 100 stocks that my family portfolio owns for their juicy dividend payouts:

* Taken on the afternoon of Monday, 29 September

As you can see, these three London-listed shares offer cash yields of 8% to 9% a year. Across all three, the average dividend yield is nearly 8.6% a year. By contrast, the FTSE 100’s cash yield is around 3.3% a year — still higher than most major stock markets’ yield.

Notice something about these three stocks? Each company operates in insurance and asset management — that is, managing other people’s money. With stock prices at record highs, this industry is thriving today. Indeed, these three Footsie firms have amassed billions of pounds of spare capital. Hence, they are returning this excess cash to shareholders in the form of dividends and share buybacks.

If an investor put a total of £20,000 across these three shares equally, they would own about £6,667 of each stock. This mini portfolio would generate £1,711 of passive income a year (but this payout could rise over time). That said, this would be a highly concentrated portfolio — and I would never advocate owning a portfolio with under, say, 10 to 20 shares. I’d rather spread my money around by putting my eggs into many baskets.

I like Legal & General

Of the above stocks, M&G has been the best performer over the past five years. M&G stock is up 56.8% in half a decade, versus a 22% rise for Legal & General Group and an 8.9% fall for Phoenix Group Holdings shares.

I’m a fan of Legal & General, which I came to know well during my 15 years of work in this sector. Founded in 1836, it is now a leading UK provider of life assurance, long-term savings and investment products. It currently manages over £1.1trn of assets for individuals and organisations.

My family has owned this stock since July 2022 and the share price is roughly the same as it was then. But we’ve collected hefty dividends and reinvested them by buying yet more shares. This has turbo-charged our returns, boosting our gains in the long run.

As well paying out a market-beating dividend, the group has bought back £500m of its own shares in 2025. Of course, when markets eventually turn and share prices fall, and revenues, profits and cash flow will suffer. Also, it operates in a competitive market, in which mergers and acquisitions are common. And that’s why Legal & General is a long-term holding for my family portfolio rather than a get-rich-quick buy! It’s one to consider.

The post Up to £1,711 a year in passive income from £20k and just 3 FTSE 100 shares? It’s possible appeared first on The Motley Fool UK.

More reading

• A stunning 9% dividend yield but down 11%, do Legal & General shares look like an unmissable bargain to me?
• Here’s how you could target a £616k retirement fund with ISAs and SIPPs
• How much do you need in a SIPP to target a £1500 monthly passive income?
• Down 8% in a month and yielding 9%! Is the Legal & General share price a no-brainer buy?
• £8,000 in savings could potentially be turned into a £1,237 annual second income. Here’s how!

The Motley Fool UK has recommended M&G. Cliff D’Arcy has an economic interest in all the shares mentioned above. 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.

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