Since the end of February, global stock markets have bounced around wildly. Before the US attacked Iran on 27 February, share prices were hitting new highs. In March, there were steep falls. However, stock markets rebounded this month. Meanwhile, for lovers of passive income (including me), the cash keeps flowing strongly.
Delicious dividends
There are many ways to earn passive income outside of work. These include renting out property, earning savings interest, collecting coupons (interest) from bonds, plus state and other pensions.
Fearing the hassle of being a buy-to-let landlord, I’ve never owned investment properties. Likewise, I know no-one who got rich purely from sitting on cash. (This reminds me of a Russian proverb, “Those who take no risks, drink no Champagne.”)
For me, dividends are the easiest form of ‘free money’. These regular (or one-off) cash payments are paid by some companies to their shareholder owners. Alas, most London-listed businesses don’t pay dividends.
Also, future dividends are not guaranteed, so they can be cut or cancelled at short notice. This happened often during 2020/21’s Covid-19 crisis. Then again, the London stock market’s dividends are rising and could hit a record high this year, beating 2018’s total.
£98bn for the taking
According to estimates, members of the FTSE 100 index could pay dividends totalling £88bn in 2026. Another £10bn might come from other members of the wider FTSE All-Share index. In short, millions of investors in UK shares will claim their share of this £98bn of passive income.
Currently, this huge sum works out to 3.5% of the FTSE All Share’s market valuation of £2.8trn. That’s one of the highest cash yields on offer from major stock markets. This is why my family portfolio is packed with income-generating FTSE 100 and FTSE 250 stocks.
The simplest, cheapest way for investors to collect this passive income — plus capital gains as share prices rise — is to invest in a low-cost index tracker. The cheapest FTSE All Share-tracking funds charge fees of just 0.06% a year. That’s just 6p per £100 — far less than active and managed funds typically charge (and these managers usually underperform their benchmarks).
A 9.1% yield
One FTSE 250 share always crops up in my high-dividend search: Taylor Wimpey (LSE: TW). This British housebuilder’s sales have suffered since interest rates rose steeply in 2022/23. Furthermore, its key rivals have slashed their dividend payments and are buying less land to develop.
On Friday, 24 April, Taylor Wimpey shares closed at 83.98p, valuing the group at under £3bn. That’s just 1.9% above the 52-week low recorded earlier that day. This stock has dived 27.1% over one year and crashed 53.6% over five years (excluding dividends).
After these price falls, this FTSE 250 share offers a tempting dividend yield of nearly 9.1% a year. That’s triple the FTSE 100’s cash yield of 3% a year. Yet, I worry that Taylor Wimpey, like its competitors, might decide to cut this cash payout. After all, current profits do not cover this outflow, forcing the firm to dip into its cash reserve of £350m.
For now, this stock will not join my buy list. Indeed, if the UK housing market weakens in 2026/27, things could get worse for Taylor Wimpey and its cohort. Who knows, I might even steer clear until falling interest rates inject new life into property prices!
