If I’m going to invest in individual companies for passive income, there’s an argument for saying that I should seek out dividend shares offering above-average yields. Otherwise, why take on the extra risk that comes from owning the stock?
Today, I’m looking at three FTSE stocks that offer just that.
Taylor Wimpey
Based on the assumption that interest rate cuts will be good news for the housing market, I’ve been bullish on shares in housebuilder Taylor Wimpey (LSE: TW) for some time. Unfortunately, we’re still waiting for the first cut to arrive.
On a positive note, that day is surely getting closer. Inflation recently fell to 2.3% — the lowest for three years. Yes, the City had been expecting a bigger drop, but the direction of travel will surely be welcomed by prospective homeowners.
An eventual revival in trading at Taylor Wimpey would be good news for the sustainability of its cash payouts too, especially as this year’s full dividend isn’t likely to be covered by profit.
On the other hand, the shares currently offer a stonking forecast yield of 6.2%. By comparison, the FTSE 100 index yields ‘just’ 3.5%. So long as the situation improves soon(ish), I think that income should be safe.
The only reason I’m not loading up is that I already have a holding in peer Persimmon.
Polar Capital
Another high-yielding dividend share is fund management company Polar Capital (LSE: POLR).
Despite operating in a completely different sector, it’s also been affected by the high interest rate environment and cost-of-living crisis. It’s hard to save for the future when the wolves are at the door.
But the tide appears to be turning. Polar’s shares have soared nearly 30% in 2024. Much of this rise came in April when the asset manager reported net inflows of £56m during the final quarter of its financial year, bringing a sustained period of net outflows to an end.
Again, I reckon a lot hinges on those rate cuts arriving in the near future. If this doesn’t happen, those gains could be quickly evaporate.
But since the shares boast a monster 7.2% forecast dividend yield for FY25, that’s a risk I’m considering taking when cash becomes available.
Supermarket REIT
A third option is Supermarket Income Real Estate Investment Trust (LSE: SUPR).
This company owns properties used by all the familiar names including Tesco, Sainsbury’s and Asda. It’s then obligated by law to pay out the vast majority of what it makes to owners.
As reassuringly predictable as this sounds, things haven’t been easy of late. The shares have fallen 14% this year, demonstrating that there’s no sure thing when it comes to investing.
On the flip side, the dividend yield now stands at a huge 8.2%. You won’t get many stocks in the UK market offering more than that.
Such a high return would usually be a red flag for me. Then again, I just can’t see demand for the sort of assets it owns falling anytime soon. In addition to leases being very long, 93% of its portfolio stores operate online fulfilment via home delivery and/or click and collect. This means the trust is also exposed to the growing popularity of online sales.
It goes on my wishlist, alongside Polar Capital.
