These 3 stocks are offering passive income of 7.1%. But is there a catch?
There are plenty of UK shares offering excellent passive income opportunities. But whatâs the easiest way of finding the very best?
One method is to compare dividend yields. However, an above-average return can be a sign that investors are expecting a cut in a companyâs payout.
Could this be the case with these three high-yielding shares that Iâve identified, or are they a great opportunity to start generating a healthy second income stream? Let’s see.
1. Legal & General
My favourite income share at the moment is Legal & General (LSE:LGEN). The FTSE 100 retirement and savings group is presently (27 February) offering a return of 8%, the highest on the index. This assumes the group keeps its pledge to increase its 2025 payout by 2%.
Some of this impressive yield can be attributed to a falling share price. Even so, the stock has a solid track record of raising its dividend. It was last cut during the global financial crisis. And it plans annual rises of 2% up until 2027.
| Financial year | Dividend (pence) | Share price (pence) | Yield (%) |
|---|---|---|---|
| 31.12.21 | 18.45 | 297.5 | 6.2 |
| 31.12.22 | 19.37 | 249.5 | 7.8 |
| 31.12.23 | 20.34 | 251.1 | 8.1 |
| 31.12.24 | 21.36 | 229.8 | 9.3 |
Threats to its earnings (and therefore its dividend) include increased competition and global market uncertainty. The group invests heavily and equities and bonds. A stock market correction, or worse, would be bad news.
However, the group has a huge pipeline of pension schemes that itâs looking to take over and manage. Also, with the State Pension age predicted to rise further, I think more people will turn to third-party providers to look after retirement planning.
2. Land Securities Group
Another stock I like is Land Securities Group (LSE:LAND). It has a £10.8bn portfolio of mainly offices, stores, and retail parks.
Again, its yield has increased more due to its falling share price than a rising payout. Having said that, itâs gone up 9.2% over its past three financial years. Based on amounts paid since February 2025 (40.8p), the stockâs yielding 6.2%.
| Financial year | Dividend (pence) | Share price (pence) | Yield (%) |
|---|---|---|---|
| 31.3.22 | 37.0 | 785.6 | 4.7 |
| 31.3.23 | 38.6 | 621.2 | 6.2 |
| 31.3.24 | 39.6 | 658.2 | 6.0 |
| 31.3.25 | 40.4 | 550.0 | 7.4 |
However, it has to be pointed out that future increases might not be possible due to the volatile nature of the commercial property sector. And with substantial borrowings, if interest rates were to stay higher for longer, this is likely to impact earnings.
But the groupâs planning to sell some of its offices to fund an expansion into the residential sector. These are expected to offer a better return. It can also boast of a high occupancy rate, thanks largely to the quality of its portfolio.
3. Supermarket Income REIT
Like Land Securities Group, Supermarket Income REIT (LSE:SUPR) is a real estate investment trust (REIT). This means it must return at least 90% of its qualifying profit each year to shareholders by way of dividends. At the moment, the stockâs yielding 7%.
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The REIT buys supermarkets in the UK and France and then rents them to blue-chip grocers. Positively, the quality of its tenants means it doesnât have a bad debt problem. However, 51% of its debt is floating, which means its repayments will rise if interest rates go up. And in extreme circumstances, falling property prices could lead to a breach of its lending covenants.
| Financial year | Dividend (pence) | Share price (pence) | Yield (%) |
|---|---|---|---|
| 30.6.22 | 5.94 | 119.5 | 5.0 |
| 30.6.23 | 6.00 | 73.0 | 8.2 |
| 30.6.24 | 6.06 | 72.5 | 8.4 |
| 30.6.25 | 6.12 | 84.9 | 7.2 |
Personally, I think the recent announcement by Ocado Group that six of its warehouses are to close over the next three years is proof that the death of the traditional supermarket has been greatly exaggerated.
Investing £10,000 in these three stocks could generate passive income of £710 over the next 12 months. Thatâs why I think these dividend shares could be considered for inclusion in a high-yielding income portfolio.
The post These 3 stocks are offering passive income of 7.1%. But is there a catch? appeared first on The Motley Fool UK.
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James Beard has positions in Legal & General Group Plc and Supermarket Income REIT Plc. The Motley Fool UK has recommended 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.
