£20k to spare? 3 income stocks to target £1,640 of dividends in 2026

Buying income stocks is — in my view — the best way to generate cash for living or reinvestment. With interest rates on cash accounts falling, too, dividend shares are gaining importance as a method of building wealth.

With a Â£20,000 lump sum, a better option could be to put that in a Stocks and Shares ISA and buy dividend stocks. There are plenty to choose from, but Global X SuperDividend ETF, Social Housing REIT, and M&G (LSE:MNG) are three I think merit special consideration.

The average dividend yield across these UK stocks is 8.2%. If dividend forecasts prove accurate, Â£20k spread equally across all three could generate Â£1,640 in dividends this year alone.

I’m confident, too, that each will deliver a growing passive income over time. But what makes them so great in my opinion? Read on.

Strength in depth

Shareholder payouts are never guaranteed. Even the most reliable dividend-paying company can cut or slash dividends when crises come along. See Shell, which raised dividends every year since World War II until Covid exploded in 2020.

Income-focused exchange-traded funds like the Global X SuperDividend ETF significantly reduce (though not completely eliminate) such a threat. This one holds shares in around 100 different businesses, reducing the impact of any specific company shocks.

What’s more, these stocks — both cyclical and non-cyclical — span a multitude of regions and industries. This provides scope for annual dividend growth, and a more stable return regardless of economic conditions.

For 2026, the dividend yield here is an enormous 9.2%.

Top REIT

Real estate investment trusts like Social Housing REIT can also offer a predictable income over time. Under trust rules, at least 90% of yearly rental earnings must be paid in dividends (in exchange for tax breaks).

This doesn’t guarantee a juicy dividend, as occupancy and rent collection issues can strike profitability. But it means investors enjoy better dividend visibility than most other income stocks provide.

This particular REIT offers extra stability, too, thanks to its focus on the defensive social housing sector. With a portfolio of more than 3,400 properties, it can also overcome potential issues with one or two tenants to deliver tasty returns.

The dividend yield here is 8.2% for 2026.

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A FTSE 100 heavyweight

At 7.3%, the forward dividend yield on M&G shares is more than double the FTSE 100. It has a long record of offering above-average yields and reliably growing cash rewards since its stock market listing in 2019.

Like any financial services provider, earnings here are highly sensitive to economic conditions. So with the UK economy in super-low-growth mode the outlook is tough.

So why do City analysts expect dividends to rise again this year (and through to 2028)? Simply put, M&G is a cash machine, reflecting its non-capital-intensive operations and predictable profit fees. And today its Solvency II capital level is a sector-leading 230%, providing dividend forecasts with strength.

Amid changing demographics, and rising interest among citizens in financial planning, I expect M&G’s dividends to keep growing long term.

The post Â£20k to spare? 3 income stocks to target Â£1,640 of dividends in 2026 appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended M&g Plc. 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.