£27bn of passive income from just 5 shares? Wow!

I’m looking to build a passive income of £100k a year and have spotted these five UK shares, which pay over £27bn a year in cash to their shareholders.

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I’m a huge fan of passive income — earnings other than from paid work. Popular forms of unearned income include savings interest, bond coupons, rental income, pensions, etc. However, I get little or no income from these options.

It’s hard to get rich saving in cash, so I keep minimal amounts in savings accounts. Also, my family portfolio has no government and corporate bonds (but might eventually). Likewise, I don’t rent property to tenants, because it’s hard work. And at 56, I’ve yet to dip into my various pensions.

I love share dividends

My favourite form of passive income is share dividends. Companies pay these cash payouts to shareholders, usually quarterly or half-yearly. However, future dividends are not guaranteed, so can be cut or cancelled without notice.

Another problem is that most London-listed companies don’t pay dividends. Some are loss-making, while other prefer to reinvest profits into boosting future growth.

For me, the best place to hunt for delicious dividends is within the elite FTSE 100 index. Happily, most Footsie members offer decent cash rewards to their owners.

For example, the 10 largest FTSE 100 firms currently pay out £37.3bn a year in dividends. Across these 10 giants, the average dividend yield is 3.9% a year — close to the index’s yearly cash yield of 4%.

Right now, these five UK-listed businesses offer the largest cash payouts to shareholders. (For ethical reasons, I have excluded a major tobacco firm.)

CompanyBusinessMarket valueDividend yieldYearly payoutOne-year price changeFive-year price change
HSBC HoldingsBanking£122.3bn7.4%£9bn+14.9%-1.9%
ShellOil & gas£182.2bn3.6%£6.6bn+16.9%+14.6%
Rio TintoMining£64.9bn6.5%£4.2bn-4.8%+10.8%
BPOil & gas£87.2bn4.3%£3.8bn-3.5%-9.2%
UnileverConsumer goods£95.7bn3.9%£3.7bn-11.1%-12.4%

Dividend yields at these Footsie stalwarts range from nearly 4% to almost 7.5% a year. These translate into yearly cash payouts of nearly £4bn to £9bn. Together, these dividend dynamos return £27.2bn a year in cash to shareholders. Wow.

For the record, my wife and I own shares in the three smallest businesses above, all of which we bought for their dividend distributions. Also, one of the other two stocks is on my watchlist for 2024/25.

I like the look of HSBC

The highest-yielding stock in my table is global banking behemoth HSBC Holdings (LSE: HSBA). This offers a generous dividend yield of 7.4% a year, which is 1.85 times the FTSE 100’s cash yield.

What’s more, this stock trades on a multiple of 7.1 times earnings, delivering an earnings yield of 14% a year. This means that HSBC’s historic dividends are covered over 1.9 times by trailing earnings. This is a pretty decent coverage ratio, so this payout looks safe to me — for now, at least.

To be honest, I’d buy this stock in a heartbeat, were it not for one big worry. HSBC is heavily exposed to mainland China and Hong Kong, which are themselves under the rigid rule of the Chinese Communist Party.

I don’t invest in countries with autocratic or repressive regimes, because history has shown these assets to be highly risky. Even so, I might buy into HSBC as or when its shares become even more compelling value passive income!

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Cliff D’Arcy has an economic interest in BP, Rio Tinto, and Unilever shares. The Motley Fool UK has recommended HSBC Holdings and Unilever. 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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