I think this is a great time to buy UK shares that can generate long-term passive income.
The FTSE 100 might be over 8,000 points now. And it might have climbed 12% since a low in October 2023.
But I still see some fat dividend yields from top Footsie stocks. And I think the forecast 9% yield from Legal & General Group (LSE: LGEN) could be one of the best to consider buying right now.
Cheap shares
The Legal & General share price has gone sideways in the past few years. And that’s despite forecasts that put the stock on a price-to-earnings (P/E) ratio of just 10. It could drop to as low as eight by 2026, if the analysts are right.
Saying that, earnings forecasts have been downgraded slightly in 2024. And any lowered growth outlook could dent the share price some more.
But we still see strong dividend yields in the forecasts, reaching 10.5% by 2026. I’d like some of that.
But before I’d buy Legal & General shares for my own long-term passive income portfolio, I do want to talk about what I wouldn’t do.
Watch out!
I would not put a big proportion of my money into a single stock, or even just one sector.
I knew someone who piled into tech stocks around the peak of the dot com bubble in 1999.
And I knew someone who had the bulk of their investment cash in FTSE 100 bank stocks… in 2007.
So, I think holding a diversified portfolio of stocks in my Stocks and Shares ISA is essential. As I already bought a bank (Lloyds Banking Group) and an insurer (Aviva), I won’t add Legal & General until I’ve spread out a bit further.
Passive income
But what kind of passive income might a 9% dividend actually get us, and how long might it take?
Let’s say I can invest £5,000 per year, which is a quarter of the annual ISA allowance. And I put that all into a stock like Legal & General, paying 9%, and reinvested the dividend cash in new shares each year.
In 20 years, I could build up a pot of £268,000. I’d have put in a total of £100,000 over that time, and made a profit of £168,000 to add to it.
Then, from that, the 9% dividend cash could earn me a very nice £24,000 per year in passive income.
Reality
In reality, share prices will move, dividends won’t stay the same, and sectors will have their ups and downs.
But in the long term, the FTSE 100 has generated average total annual returns of about 7%. And for those who don’t mind a bit of a smaller stock risk, the FTSE 250 has averaged 11%.
For me, that means I see the UK stock market as my best chance of earning some passive income. But it does mean making sure to diversify, and to keep at it for the long term to get over the inevitable short-term bad spells.
