The recent stock market crash has caused a number of UK shares to offer relatively high dividend yields. Certainly, there is a risk that they will follow the actions of other stocks and cut shareholder payouts in response to weak operating conditions. However, in many cases, FTSE 100 and FTSE 250 stocks offer impressive income returns that appear to be relatively stable.
As such, now could be the right time to buy a selection of bargain UK shares with high yields to generate a passive income. Through focusing your capital on solid businesses, you could obtain a significantly higher income return than that available from other mainstream assets.
High dividend yields after a stock market crash
The stock market crash has caused the prices of a wide range of UK shares to decline heavily. Although in some cases they have rebounded strongly, a large number of FTSE 100 and FTSE 250 stocks currently offer high dividend yields.
Although there are risks facing investors, such as a weak economic outlook, that could cause dividend growth to decline, some companies have reported a modest financial impact from recent events. Through building a portfolio of such companies, you may be able to not only obtain a high income return, but develop a resilient passive income that has the potential to grow in the coming years.
Furthermore, investors may wish to focus their capital on dividend shares that can withstand a second market crash. For example, buying UK shares with solid balance sheets, affordable dividends and defensive characteristics could lead to a more robust passive income in the coming years.
Certainly, a second stock market crash could cause paper losses for income investors. However, the yields on offer from a number of companies in the FTSE 100 and FTSE 250 suggest that this risk has been factored-in by investors.
Therefore, the income returns that can be achieved from the stock market relative to other mainstream assets suggest that their risk/reward opportunity is more attractive. For example, cash savings accounts offer interest rates that are less than 1% in many cases, while investment-grade bonds also offer disappointing passive income opportunities.
Through building a diverse portfolio of UK dividend shares after the market crash, you can reduce your overall risks. This will not insulate you from a potential downturn in the wider stock market, but it can help to improve the reliability of your passive income due to reducing your reliance on a small number of companies.
Over time, those stocks could offer a growing dividend return, as well as a high initial yield, that boosts your passive income relative to other assets. As such, now could be the right time to start buying FTSE 100 and FTSE 250 shares that offer solid financial positions and impressive yields.
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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.