I’m a huge fan of passive income — earnings generated outside of paid work. Three popular types include savings interest, bond coupons, and rental income. However, most of my unearned income comes from share dividends.
Dividends are regular cash distributions made by some companies to their shareholders. Most UK-listed shares don’t pay dividends, but the majority of FTSE 100 stocks do. Hence, the Footsie is my ideal index for chunky cash payouts.
For example, my family portfolio owns these two blue-chip ‘dividend dynamos’ for enhanced income:
1. Phoenix
Phoenix Group Holdings (LSE: PHNX) operates in the long-term savings and retirement sector. It is primarily a consolidator, in that it buys, manages, and runs off existing books of insurance policies and pensions. Also, Phoenix sells life insurance, pensions, and savings products to the public.
At the current share price of 656p, this group is valued at £6.6bn — far smaller than many rival European and US asset managers. This gives me hope that maybe one day Phoenix will be taken over by a larger player.
But my main reason for owning this FTSE 100 share is its whopping dividend yield. Currently, Phoenix’s running dividend yield is 8.2% a year, one of the highest in the London market. In comparison, the wider Footsie yields 3.6% a year.
In addition, this stock is up 24.8% over one year and 3% over five years. For the record, my wife and I paid 514.9p each for our stake in Phoenix. Thus, we are sitting on a paper gain of 27.4% as an added bonus.
Then again, Phoenix and other asset managers operate in a hugely competitive environment — one where fund fees have been falling since the turn of the century. As I noted above, it is also a small player in that market. Furthermore, another stock-market wobble or full-blown crash could hit its future revenues, earnings, and cash flow. Still, I intend to hold tightly onto these shares for their powerful passive income.
2. L&G
Like Phoenix, asset manager Legal & General Group (LSE: LGEN) looks after other people’s money. Founded in 1836, L&G has become one of the UK’s leading providers of insurance, investments, and pensions. At the end of 2024, the group had £1.1trn under management, placing it among Europe’s biggest asset managers.
For me, L&G ticks a lot of boxes. It has a household name, a solid management team, and a business strategy that has delivered for decades. Indeed, while I worked in the insurance world for 15 years, L&G was among the businesses I admired most.
Even so, this stock looks inexpensive to me. At the current share price of 254p, this company is valued at £14.7bn, while the dividend yield is a juicy 8.4% a year. The shares are up 10.2% over one year and 17.4% over five.
We paid 246.7p a share for our holding in L&G in mid-2022, but don’t need these dividends right now. Hence, we reinvest them (and all other dividends) into buying more shares to raise our future returns.
L&G is a big player in the pension-transfer market, which is booming now, but could come off the boil in time. It also faces the same market pressures as Phoenix. But, it’s been a great British business for 189 years. Hence, I hope to hold — and maybe buy more of — these shares for years to come!
