My £10,000 investment plan yielding 8%+ from UK dividend shares

With £10,000 to invest, our writer would build a portfolio of UK dividend shares currently yielding over 8% on average. These are the shares he would pick.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing in UK dividend shares can be a lucrative source of passive income. Buying a range of such shares means that, even if one company unexpectedly cuts its dividend, hopefully I will still receive income from other holdings.

With £10,000 to invest, I would split it evenly across these five shares to target a yield of over 8%.

Risks and rewards

Will the housing market collapse? Will cigarette smoking keep falling? Those sorts of worries plague investors in companies such as housebuilder Persimmon and tobacco company Imperial Brands.

I think the worries are justified and they do pose a risk to future profits. But I also think that risk is built into the companies’ share prices already, as reflected in their high dividend yields. Persimmon, for example, is yielding 9.7% and Imperial offers 8%. Both companies are in the FTSE 100 and their yields are far above the average offered by their peers in the index.

There is a lot I like about the companies. Persimmon is a recognised name among homebuyers and has a disciplined financial model with high profit margins. Its most recent full-year results showed a net profit margin of 19%. Imperial is also a high margin business, thanks to the low manufacturing costs of cigarettes and pricing power offered by its portfolio of premium brands.

Financial services

I would also invest in two high-yielding companies that operate in different parts of the financial services sector.

First is asset manager M&G, currently offering a dividend yield of 8.4%. The company is well-established and has a sizeable client base. With assets under management and administration of £370bn, M&G is a huge business. That scale can help it make big profits, both now and in future. One concern I have is investors leaving its retail asset management arm over recent years. If that continues, profits could fall. But ongoing strength in M&G’s institutional business is a source of confidence.

I would also invest in insurer Direct Line. The insurance business model is fairly simple and Direct Line stays away from the sorts of exotic risks that can throw up sudden unexpected losses on a big scale. Events like the recent storms could still hurt profitability in any given year. But over the long term I think the company’s brand and underwriting expertise should help it attract and retain profitable business. With a dividend yield of 7.4%, I would tuck Direct Line in my income portfolio and hold it there.

High-yield trust

Lastly, I would put £2,000 into Income & Growth Venture Capital Trust. As the name suggests, it seeks to generate both income and capital growth by investing in a large portfolio of early stage companies. Most such companies are unlisted, but I can get exposure to them by buying Income & Growth shares. Some companies may fail, which could hurt the trust’s profits, but hopefully it will also pick some real winners.

The dividends tend to move around a lot, but the current yield is an attractive 9.6%.

UK dividend shares with average 8.6% yield

With an average yield of 8.6%, splitting my £10,000 evenly across these five shares would hopefully give me annual passive income of £862. I regard this portfolio as an attractive way to boost my passive income streams.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Christopher Ruane owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

More on Investing Articles

UK money in a Jar on a background
Investing Articles

With a 10.1% yield, should I buy this FTSE 250 income stock?

Our writer looks at an income stock that’s kept its dividend unchanged for five years. But is it high enough…

Read more »

Investing Articles

Up 23% in a month, can this FTSE 100 stock continue to soar?

Airtel Africa's recently been the FTSE 100’s top-performing stock. With huge opportunities for growth ahead, is it set to continue?

Read more »

Investing Articles

£20,000 in savings? Here’s how an investor could use it to target an eventual £980 of passive income each month

Our writer demonstrates how an investor could aim to earn close to £1,000 each month in passive income from a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

£10,000 invested in the S&P 500 at the start of 2025 is now worth…

Since the start of the year, the S&P 500's underperformed the FTSE 100. And Stephen Wright thinks investing in the…

Read more »

Investing Articles

Is this a turning point for the Diageo share price?

The Diageo share price is at an eight-year low. Is this FTSE 100 favourite simply too cheap to ignore? Roland…

Read more »

Investing Articles

As the FTSE 100 hits record highs, should I sell my shares and buy an index fund?

Our writer’s portfolio lagged the FTSE 100 last year, but he’s not giving up on stock-picking and highlights a recent…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Lloyds shares 6 months ago is now worth…

Lloyds shares have performed well over 12 months but have broadly disappointed investors over the long run. Dr James Fox…

Read more »

Investing Articles

£20,000 in savings? Here’s how investors can aim for a £4,000 monthly second income

Millions of investors use the Stocks and Shares ISA as a vehicle to build wealth and generate a second income.…

Read more »