UK shares offer some of the most generous dividends in the world. Beyond high yields, the London Stock Exchange is home to a long list of companies that have consistently raised their shareholder payouts every year for over a decade. And in the FTSE 350 alone, there are roughly 60 businesses in this category.
Put simply, British investors are spoilt for choice when it comes to building a long-lasting and reliable passive income portfolio. But just how much money do they need to invest to start earning a decent income?
Aiming for £5,000
Let’s say, a brand-new investor has an initial goal of earning £5,000 a year from dividends without having to lift a finger beyond buying shares. The amount of capital needed to unlock this income stream ultimately depends on which stocks they buy.
Someone following a passive index investing strategy would likely need around £161,290, looking at the FTSE 100‘s current 3.1% yield. But for stock pickers honing in on 6% yielding stocks, the required portfolio size could be closer to £83,300.
In both cases, a significant lump sum is needed. But by being patient, investing a small amount each month, and reinvesting dividends paid along the way, reaching these milestones is far more feasible than most might think in the long run.
But even when these targets are reached, there remains the challenge of finding high-quality dividend stocks to buy.
A popular income pick
British American Tobacco (LSE:BATS) is arguably one of the most popular passive-income producing stocks in Britain. While not everyone is fond of the idea of investing in a tobacco company, the shares have long been a lucrative source of dividends with a stellar track record of payout hikes spanning over 25 years.
While cigarette sales volumes have steadily trickled down due to a structural shift in consumer behaviour, the company’s cash flows have nonetheless remained impressive.
By exercising its pricing power, British American has successfully offset the drop in volumes. And this has further been compounded by brand loyalty and operational efficiency initiatives. Moreover, its products have exhibited noteworthy resilience even during previous economic downturns.
These trends obviously won’t last forever. Efficiency gains aren’t limitless, nor is pricing power. But management is fully aware of the need to innovate. And while it’s still early days, the group is seeing some success with its reduced-risk products and brands like Vuse, glo, and Velo, which now generate almost 14% of sales.
Risk versus reward
Even with management making moves to secure its future, the tobacco stock is not risk-free by any stretch. Its new brands are still tiny by comparison to its mature and established cigarettes portfolio. And with the market for heated tobacco and vapes still developing, the competition is exceptionally fierce to secure the crown as the most popular brand.
These competitive pressures are already making growth more challenging, with the group’s New Categories revenue expansion actually coming in flat across the first six months of 2025 while volumes of traditional cigarettes continue to steadily fall.
Put simply, the clock is ticking and there’s no guarantee that British American Tobacco will successfully transition into a dominant position versus its rivals. That’s why, despite the attractive yield, I’m looking at other 6% yielding UK shares to buy today.
