UK stocks have experienced a pretty amazing 2025. The FTSE 100 delivered its strongest annual performance since 2009, with the financials, mining, defence, and healthcare sectors leading the charge.
But the truth is, even with this strong surge, many British stocks are still undervalued. And that means plenty of tasty dividends are still on offer. By exploiting these untapped opportunities, investors can unlock a substantial second income even with only a relatively modest £5,000 lump sum to hand.
Here’s how.
Hundreds of dividend investments
As of December 2025, 276 UK stocks are offering a dividend yield of 4% or more – 112 of which can be found within the FTSE 100 and FTSE 250. In other words, it’s not just the large-caps offering juicy payouts right now, but small-caps as well. And in some extreme instances, the dividend yields go as high as 22%!
At this level of payout, a £5,000 investment would instantly unlock a £1,100 second income overnight. But as all experienced investors know, yields this high are almost never sustainable. And this particular company, Petrotal, has just recently announced the suspension of shareholder payouts – a classic yield trap.
But not all high-yield stocks are destined for disaster. In fact, there have been numerous occasions throughout history where, despite all odds, the dividends not only continued to flow but also grew as well. And being able to spot such opportunities early on can lead to impressive investment returns.
A potential income outlier?
One FTSE stock that’s started getting a lot of attention lately is Ashmore Group (LSE:ASHM). With a dividend yield of 10.4%, if I were to invest £5,000 right now, the estimated passive income would be a chunky £520.
Considering a FTSE 100 index tracker would currently only generate around £154 for the same investment, it’s easy to understand why Ashmore is starting to turn some heads. But is this just another PetroTal -type crash waiting to happen?
As a quick crash course, Ashmore is an asset management business specialising in emerging markets – an area that most of its rivals don’t tend to focus on.
Despite emerging market stocks performing strongly in recent years, investor sentiment largely remains weak. And it’s ultimately resulting in an outflow of capital from its clients. And with fewer funds under management, Ashmore’s management fee income has suffered.
This fee compression presents a massive problem. Specifically, the company doesn’t generate enough profit to cover its dividend obligations. That’s why the yield is so high.
Does that mean a dividend cut is coming? Maybe not.
Digging into the details
Over the long term, Ashmore cannot keep paying out more money than it generates. But with a substantial £350m cash buffer, management has enough financial resources to cover its roughly £120m in annual dividends for several years.
That gives the company a decent window of opportunity to rekindle investor interest and bolster its revenue stream. And to management’s credit, there are some early signs of this working.
The group’s net outflows are shrinking. And with the ongoing outperformance of emerging market investments, the group’s assets under management are on the rise. While there’s no guarantee that this recovery pattern will continue, it does hint that the UK stock’s impressive dividend yield could be here to stay. That’s why I think Ashmore deserves a closer look.
