The UK stock market has rallied over the past 12 months. Dividend yields have fallen as a result, since yields move inversely to share prices. Yet the London Stock Exchange remains a great place to find shares for a second income.
The average dividend yield on FTSE 100 and FTSE 250 stocks has fallen to roughly 3.1%. That’s at the bottom end of the historical 3% to 4% range. It means a £5,000 investment in funds that track these indexes would generate a £155 passive income for investors in 2026.
That’s not a terrible result. Indeed, it’s better than the dividend yields from most other major global indexes. But there are much better ways to generate a dividend income from UK shares today.
Shall we take a look?
The dividend dozen
I love the idea of index tracker funds. They’re an easy way to invest, and they diversify across a wide range of companies. This gives investors exposure to a wide range of growth and dividend opportunities, with risk spread across many holdings.
But with a little extra effort, share pickers can enjoy excellent diversification while also targeting superior returns.
Here’s what a diversified portfolio of 12 top-class dividend shares could look like:
| Dividend share | Sector | 2026 dividend yield |
|---|---|---|
| Legal & General | Asset management | 8.7% |
| Greggs | Food retail | 4% |
| Vodafone | Telecoms | 4.2% |
| Unite Group | Real estate investment trusts (REIT) | 7% |
| BP | Oil and gas | 6% |
| HSBC | Banking | 4.8% |
| Diageo | Beverages | 4.6% |
| Taylor Wimpey | Housebuilding | 8.3% |
| Aviva | Life insurance | 6% |
| GCP Infrastructure Investments (LSE:GCP) | Investment trusts | 9.6% |
| Pennon Group | Utilities | 5.7% |
| Vesuvius | Industrial machinery | 6% |
With exposure to both growth and defensive companies, this portfolio could deliver stable dividend income across the economic cycle and the possibility of rising dividends over time.
A top trust
GCP Infrastructure Investments could be especially attractive given its near-double-digit dividend yield. Unlike some high-yield shares that can carry higher risk, this one’s provided a solid pick for passive income, paying dividends for 14 straight years.
So what makes the trust so robust? Well it provides debt finance for publicly backed British infrastructure projects, meaning the chances of loan default are remote. The interest it receives is then distributed to shareholders in the form of dividends.
The possibility of a loan repayment being missed isn’t zero, of course. But while such an event could impact shareholder payouts, GCP’s loans are spread across sectors, which in turn substantially reduces such dangers.
The bottom line
With an average dividend yield of 6.2% for 2026, I’m confident our portfolio could deliver a passive income that’s double what the broader FTSE 100 and FTSE 250 may provide.
With a £5k lump sum, an investor could expect to make £310 next year alone. I’m confident, too, that the income our dividend shares pay will steadily rise beyond next year.
Dividend yields on UK shares may have declined in 2025. But as you can see, the London stock market remains a great place to find a second income in the New Year.
