Meet the dividend stocks tipped to outshine Lloyds shares for passive income!
Lloyds Banking Group (LSE:LLOY) remains of the FTSE 100‘s most popular dividend stocks. It’s a phenomenon I’m struggling to understand given the collapse in the bank’s dividend yield this year.
Lloyds’ share price has rocketed 73% since 1 January. And so its forward dividend yield has dropped to 3.8%, way below the 10-year average of 6%.
This figure is also just a shade above the 3.2% for the broader FTSE index.
On the plus side, 2025’s full-year dividend is tipped to rise an impressive 14% from last year’s levels. Yet I’m doubtful the bank can keep supercharging cash payouts as the UK economy struggles, margins drop as interest rates fall, and competitive pressures increase.
In my opinion, investors should think about avoiding Lloyds shares and buying other dividend stocks instead. Two great passive income stocks that I currently own are Target Healthcare (LSE:THRL) and Legal & General (LSE:LGEN).
But what makes them top dividend shares to consider? Let me explain.
Take care
Real estate investment trusts (REITs) like Assura are among the most dependable dividend payers out there.
They’re not bulletproof, as profits are sensitive to occupancy levels and rent collection. Both can deteriote sharply when economic conditions worsen.
Yet sector rules limit the company’s decision making on payouts, which can lead to better dividend visibility for investors. REITs have to pay at least 90% of annual rental profits out in dividends.
Target is one of my favourite property trusts right now. Operating in the ultra-defensive care home industry helps limit the possibility of rent defaults and vacant properties. It also provides enormous growth opportunities as the UK’s elderly population rapidly expands.
The FTSE 250 company’s forward dividend yield is 6.2%. Dividends are paid quarterly — these rose 2.5% for July to September, and were fully covered by adjusted earnings.
I’m hoping to buy more Target shares when I next have cash to invest.
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Another Lloyds beater
I’ve made Legal & General my single largest holding for passive income. I don’t regret making this decision: at 8.9%, the company has the largest forward dividend yield on the FTSE 100.
For 2026 and 2027, too, the yield rises above 9%. Annual dividends are expected to keep rising through the end of the period (Legal & General’s raised payouts in 12 of the last 13 years).
That’s pretty awesome in my view. But everything’s not been perfect for dividends in recent times.
Legal & General has trimmed its dividend growth targets for the next few years to 2%. This is down from 5% in recent times, and reflects a pivot towards delivering greater share buybacks.
Yet this hasn’t deterred me as a dividend chaser, and not just because its dividend yields remain enormous. Long term, Iâm expecting reliable — and potentially accelerating — payout growth as ageing demographics and State Pension worries boost demand for financial products.
Its strong cash generation should also underpin steady payouts even during tough periods. Its Solvency II capital ratio is a stunning 217%, latest financials show.
I’m hoping to hold my Legal & General stock indefinitely, even though its share price could dip when the economy weakens.
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Royston Wild has positions in Legal & General Group Plc and Target Healthcare REIT Plc. The Motley Fool UK has recommended Lloyds Banking 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.
