UK income stocks are a great way of aiming for a £317 monthly passive income

There are loads of UK income stocks to choose from at the moment. And now could be a good time to buy some to target a monthly three-figure passive income.

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UK financial background: share prices and stock graph overlaid on an image of the Union Jack

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British shares have established a reputation for being some of the best income stocks in the world. In fact, research by Fidelity has found that the dividend yield in this country is higher than in the US, Europe, and Asia.

And with so many exciting stocks to choose from, now could be a great time to start building a portfolio of high-yielding shares. Here’s one way of doing this.

TerritoryDividend yield (%)Payout ratio (%)
UK3.447.2
Europe3.250.7
Asia Pacific (exc. Japan)2.539.8
Japan2.238.4
US1.427.5
Source: Fidelity

One approach

Personally, I’d use a Stocks and Shares ISA. That’s because any income and capital growth can be earned tax free. And although there’s an annual limit of £20,000 on how much can be invested, I don’t think this is likely to be a problem for the majority of investors.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Once an ISA’s been opened and cash transferred, it’s time to start picking some shares. Savvy investors know that it’s wise to have a number of stocks spread across different industries. Fortunately, many of the largest dividend payers on the UK stock market can be found in a variety of sectors.

And because dividends can never be guaranteed, I’d tend to focus on larger companies. Their global presence and, in most cases, strong balance sheets means there’s less chance of a dividend cut. And even if they did have to reduce their payout, it might only be a blip.

For example, the FTSE 100’s home to tobacco companies, banks, utilities, and construction companies, all of which have reputations for returning large sums of cash to their shareholders each year. And some of these have long track records of increasing their annual dividends.

The biggest of them all

In terms of cash, the biggest dividend payer on the London Stock Exchange is HSBC (LSE:HSBA). According to AJ Bell, it’s expected to pay out £9.2bn in its 2025 financial year. This doesn’t necessarily make it the highest yielder on the index – in fact, there are currently (5 February) 28 stocks offering a better return – but it shows how much free cash the banking giant can generate.

Of the five banks on the FTSE 100, HSBC’s yield (3.8%) is the highest. But it’s more of a mixed picture when other valuation measures are taken into account. For example, its price-to-book ratio is the highest and it ranks third when looking at price-to-earnings ratios. There’s little point buying an income stock if it’s obvious that it’s overpriced.

However, I don’t think it is. Don’t get me wrong, given that HSBC’s share price has risen 56% since February 2025, I’m not expecting this sort of growth to continue for much longer. But I can’t see it tanking either. And with its international exposure, diversified business model, healthy balance sheet, and strong brand, I think its dividend’s reasonably secure for now so is worth considering.    

HSBC’s just one example of a UK income stock paying an above-average dividend. Someone with a well-balanced Stocks and Shares ISA worth £100,000 — containing a number of dividend shares paying 3.8% — could generate monthly passive income of £317. What’s not to like about that?

HSBC Holdings is an advertising partner of Motley Fool Money. James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc, HSBC Holdings, and London Stock Exchange Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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