My preferred way of targeting a large and sustained passive income is to buy UK dividend shares. The FTSE 100 and FTSE 250 alone are packed with high-dividend-yield stocks that could provide substantial cash rewards in the near term and beyond.
Here are three shares for income investors to consider today. Across them, the average dividend yield is an enormous 8.4%.
High yielding housebuilder
Things remain uncomfortable for Taylor Wimpey (LSE:TW.) as the housing sector endures a bumpy recovery. On Wednesday (30 July), the company reported “softer market conditions” in Q2, with average selling prices of £313,000 in H1 coming in lower than its forecast of £330,000.
Trading could continue disappointing if the UK’s economy keeps struggling, putting further pressure on the company’s share price. But thanks to its industry-leading balance sheet, I’m optimistic Taylor Wimpey should at least continue paying large dividends.
Its forward yield is now 9.3%. Dividend forecasts are supported by the Footsie housebuilder’s impressive £326.6m net cash pile.
Over the longer term, I think Taylor Wimpey’s profits will rise strongly as Britain’s population booms and demand for new homes follows suit. This should make it an attractive dividend share for years to come. The UK population is tipped to reach 70m by the middle of 2026 by the Office for National Statistics, around a decade earlier than previously thought.
Dividend specialist
Real estate investment trust Custodian Property Income REIT (LSE:CREI) is designed with dividends in mind. It pays out 90% of annual earnings or more from its rental operations to shareholders, in line with industry regulations.
This doesn’t automatically translate into huge passive income flows, mind. Profits can disappoint during economic downturns if rent collection and property occupancy levels dip.
Custodian’s exposure to cyclical sectors like retail and industrials make this a possibility. But the risk is low, in my opinion: the trust has almost 180 properties on its books and around twice the number of tenancies, providing excellent diversification. Tenants are also secured on long contracts: the weighted average unexpired lease term was five years as of June
The forward dividend yield here is 7.4%.
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Excellent cash flow
Legal & General (LSE:LGEN) is the second FTSE 100 share on this list. It’s also, like Taylor Wimpey, a UK stock I’ve bought to boost my own dividend income.
The markets it specialises in — namely asset management, and retirement and life insurance products — are growing rapidly over time. But companies in this sector have struggled to grow profits more recently due to higher interest rates and weak economic growth.
These issues remain dangers in the near term. But so far, this hasn’t compromised Legal & General’s excellent cash generation and its ability to pay enormous and growing dividends — its astonishing Solvency II capital ratio of 232% suggests things aren’t about to change in the near term either.
City analysts agree. And as a consequence, Legal & General shares carry a gigantic 8.6% dividend yield.
