I’d put £20,000 in these 3 dividend shares to target £1,500 in annual passive income

With a sizeable lump sum, here’s how I’d invest it in a trio of popular dividend shares to generate a four-figure annual dividend payout.

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If I had £20,000 to invest for passive income today, I’d split it across three high-yielding dividend shares. These would include Taylor Wimpey (LSE:TW), Lloyds (LSE:LLOY), and Legal & General (LSE:LGEN). And here’s how these picks could generate over £1,500 in annual dividend income for me.

1. Taylor Wimpey

Taylor Wimpey’s industry-leading 8.1% dividend yield makes it an extremely attractive stock to own. As such, I’d invest £7,000 in Taylor Wimpey shares to generate an annual dividend income of roughly £567 based on the current payout. That said, this could change. After all, headwinds for the housing sector due to higher mortgage rates and inflation could affect near-term profits and dividends.

Nonetheless, the housebuilder focuses on selling homes to more affluent buyers who are less worried about higher mortgage rates. The board has also vowed to pay out at least £250m annually, or 7.5% of its net asset value, in dividends to shareholders which should provide some form of security.

Aside from that, the stock’s valuation also looks compelling. Taylor Wimpey shares trade at just 7.5 times earnings, below its five-year average of 10. But what’s most promising is the eventual recovery of the housing market. This could see its earnings and dividends rise admirably.

2. Lloyds

Lloyds shares offer a very stable dividend with a current yield of 5.9%. Therefore, I’d invest £7,000 in the stock to generate around £413 in annual dividend income based on today’s payout.

While there’s economic uncertainty in the near term, the lender actually recently upgraded its guidance for 2023. More importantly, the bank boasts robust capital levels, and its dividend is covered nearly twice by its earnings, making payouts sustainable.

With the shares still trading meaningfully under 50p, the valuation of Lloyds shares looks attractive. That’s because they’re trading at low levels relative to earnings and book value. Plus, Lloyds’ cost-cutting initiatives bode well for future dividend growth.

Having said that, investors alike should also be wary that the Lloyds share price could decline in value and trigger a reduction in dividends. This would especially be the case if the UK enters a recession.

The same can be said for Legal & General, as a recession could see fewer insurance premiums. Consequently, its shares have been hit recently. Nevertheless, they still offer a very attractive 8.8% dividend yield. Therefore, I’d invest £6,000 in them to produce roughly £528 per year in dividends based on the current payout.

L&G has a great track record of steadily increasing its dividends over the past decade. Moreover, the insurer generates strong capital and stands to benefit over the long term as pension deficits in the UK narrow and more companies shift from defined benefit to annuity policies. This trend provides a long runway for growth in both earnings and dividends.

Trading at a cheap valuation of 6.5 times earnings, the stock’s valuation looks very attractive for the future income potential. In fact, its management team is known for being rather shareholder-friendly based on its commitment to growing dividends.

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.

John Choong has positions in Lloyds Banking Group Plc and Taylor Wimpey 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.

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