Could someone really generate a return of 8.1% from these 5 passive income shares?
Passive income is typically defined as money earned with minimal ongoing effort. And the concept has plenty of high-profile backers. For example, Warren Buffett once said: âIf you don’t find a way to make money while you sleep, you will work until you dieâ.
This sounds great in theory. But whatâs the best way of making this happen?
My preferred approach
Personally, I like to invest in UK stocks and shares. Generally speaking, they have a reputation for paying the most generous dividends in the world. According to AJ Bell, members of the FTSE 100 are likely to return £79.4bn to shareholders in 2025.
Admittedly, thereâs a bit of up front work required to identify the most appropriate income shares but then, other than keeping an eye on earnings releases and other stock exchange announcements, very little effort is needed.
To give some idea as to the level of return thatâs currently on offer, Iâve identified five high-yielding stocks of companies that are operating in different industries. I believe spreading risk through diversification is essential for successful investing.
Based on amounts paid over the past 12 months, the five presently (31 October) offer a yield of 8.1%.
I would have to do further research to understand more about the pros and cons of investing in all of them. But the purpose of the list is to give some idea as to the potential level of return that might be on offer from domestic equities.
| Stock | Sector | Yield (%) |
|---|---|---|
| Legal & General | Financial services | 9.0 |
| Harbour Energy | Oil and gas | 9.0 |
| Taylor Wimpey | Construction | 8.8 |
| Mondi | Industrial products | 7.3 |
| Land Securities Group | Commercial property | 6.4 |
Solid prospects
When it comes to income, I like the look of Taylor Wimpey (LSE:TW.). The housebuilder has a policy of paying around 7.5% of net assets — subject to a minimum of £250m — in dividends each year. Based on the current number of shares in issue, this should lead to a payout of at least 7.06p in 2025, which is equivalent to a 6.7% yield.
However, the company is currently offering a better return. Although the industry has been in the doldrums since the pandemic, there are some signs that we are in the early stages of a recovery. The group hopes to build 4.3%-8.3% more homes (excluding joint ventures) in 2025 compared to 2024.
But there are some challenges. The UKâs finances are not in great shape and itâs widely expected that the Chancellor will increase taxes in this monthâs Budget. This could squeeze incomes, dent consumer confidence, and damage the housing market. Also, persistent construction cost inflation remains an issue for the sector.
However, there remains a shortage of housing in the country and the government is trying to get legislation through Parliament which will streamline the planning process. Mortgage approvals are slowly increasing and if, as expected, interest rates start to fall over the coming months, borrowing should increase further. In addition, the group has very little debt on its books.
All this gives me confidence that Taylor Wimpeyâs generous dividend can be supported. On this basis, I think the stock could be one to consider.
Wise words
Of course, all of the yields quoted cannot be guaranteed.
Earnings can be volatile, which means returns to shareholders can also fluctuate from one period to another. However, by choosing the stocks of companies with strong balance sheets and healthy potential earnings growth, I think itâs possible to mitigate — to some extent — against erratic payouts.
The post Could someone really generate a return of 8.1% from these 5 passive income shares? appeared first on The Motley Fool UK.
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More reading
- The Taylor Wimpey dividend yield is close to 9%. Time to buy?
- I canât stop buying Taylor Wimpey shares â hereâs why itâs my favourite FTSE income stock
- Prediction: analysts think this UK high-yield dividend stock is set to climb 20%+!
- Is this my last chance to buy Taylor Wimpey before the share price rockets?
- 9% yield and P/E of just 12! Is this the best value stock on the FTSE today?
James Beard has positions in Harbour Energy Plc and Legal & General Group Plc. The Motley Fool UK has recommended Aj Bell Plc and Land Securities Group 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.
