I’m on the hunt for another income stock to add to my portfolio and right now there are some incredible dividends out there. This FTSE 100 housebuilder yields 9.05% a year, but inevitably comes with one or two risks.

Barratt Developments (LSE: BDEV) is the UK’s biggest housebuilder, delivering 17,243 new homes in the last financial year. This is a tough sector to operate in today, as rising interest rates drive up mortgage costs and the cost-of-living crisis makes buyers feel poorer.

This is a stand-out income stock

Mortgage lending is expected to fall 15% in 2023, with property transactions down a staggering 21%, according to UK Finance. House prices are set to fall 9% over the next two years, the Office for Budget Responsibility reckons. It could be more.

The impact on the Barratt share price has been brutal. It is down 45% over the past 12 months. Over five years, the stock is down 33%. It was still struggling to grow even while house prices were booming. So why would I buy it now?

First, it’s a top income stock and that 9% yield is covered 2.2 times by earnings. If I bought it today, I would have to accept the risk that the dividend may be cut. However, management could slice it by a third and it would still give me a pretty decent 6% yield.

Management takes the dividend seriously. While it suspended it in 2020 during the pandemic, it has increased steadily over the last five years, from 26.5p to 39.6p in the year to 30 June.

We live in a different world today, of course. In October, Barrett said the current crisis has hit new home sales, with average net weekly private reservations falling from 281 to 188. It also lowered full-year pre-tax profit guidance slightly to £972.5m.

I’d buy Barratt for its blockbuster yield

The mortgage market went haywire in the wake of former chancellor Kwasi Kwarteng’s mini-budget, but has settled somewhat. Two-year fixed rates have retreated to as low as 4.65%, while five-year fixes are also below 5%. Before Jeremy Hunt took charge, they peaked at almost 7%. Yet there is no doubt that 2023 will be tough for the housing market, and Barratt too.

The good news is that demand for property is still high, given the UK’s housing shortages. Barratt still claims a “strong forward order book” and expects completions in line with 2022. Against this, we have to balance a dip in net land approvals, which have fallen below replacement level. Yet this will help preserve cash.

Barratt had net cash reserves of £1.14bn at the end of June, which bodes well for the dividend. The share price could have further to fall, but today’s dirt-cheap valuation of just 4.9 times earnings reflects many of the challenges it faces.

It’s now on my watchlist and I’ll buy it when I have the cash, with the plan to hold it for the long term. That way I get to buy Barratt when it’s cheap, and should benefit when the recovery finally comes.

The post 9% yield! This income stock faces challenges but I can’t resist its supercharged dividend appeared first on The Motley Fool UK.

More reading

• Hesitant over a Stocks and Shares ISA? Here’s a way to deal with scary markets
• 2 superb FTSE 100 stocks to buy before the next bull market, according to experts!
• With prices forecast to soar 66% (or more), consider these 3 value stocks to buy for an ISA in 2026
• FTSE 100 stocks: the biggest winners and losers of Q1 2026
• Down 32% and with a P/E of 8.1, is this FTSE 100 share too cheap to ignore?

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. 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.

As I plan to stop working in the next 10-15 years, I’m keen to accelerate my efforts to generate passive income in retirement.

So far, I have mostly done this by investing in UK dividend shares, but as house prices wobble I’m wondering whether buy-to-let will offer an opportunity again.

I have shunned buy-to-let for years. As well as the sheer effort of buying and maintaining a property, and finding and replacing tenants, it’s expensive. Investors have to pay a 3% stamp duty surcharge, while higher rate tax relief on mortgage interest has been scrapped.

Full speed for passive income

Another disadvantage is that all rental income is subject to income tax, while any house price growth will attract capital gains tax. By contrast, if I invest in top FTSE 100 companies inside a Stocks and Shares ISA, all my income and capital gains are free of tax for life.

That makes life simpler as well, because I do not have to mention them on my self-assessment tax return. Buy-to-let involves a lot more paperwork. But I’ll admit there’s excitement in buying bricks and mortar, and over the long term UK property has been a hugely rewarding investment.

I wouldn’t buy today though because property prices have not actually fallen so far, while share prices have. The FTSE 100 is down 8.2% this year, and trades at 6,890. That is a better performance than most global markets, but it still leaves the index packed with top blue-chip shares trading at low prices.

These bargains are available right here, right now. If I wanted property market exposure, I could buy housebuilder Barratt Developments. It now trades at an astonishingly low 4.18 times earnings, while paying passive income 10.38% a year. There aren’t many buy-to-lets that would give me a double-digit yield.

Given the ease of buying shares, this looks a much more tempting option. I could open my investment platform and complete the trade in less than a minute. By comparison, choosing a property would take hours trawling Rightmove, and between three to five months to complete.

Naturally, there are risks to buying shares. The stock market could have further to fall, given current economic problems. Customers are being squeezed, so are profits. Borrowing costs are rising. Things are likely to get worse before they get better.

I favour UK shares over buy-to-let

Yet I can reduce some of the dangers by investing in a spread of top UK dividend paying shares. I can further spread my risk by investing in different sectors, not just housebuilders. I certainly couldn’t afford to buy a spread of buy-to-let properties.

Also, I don’t have to borrow money to buy UK shares, as I would with a property. I just purchase them (in seconds) whenever I have cash to spare. There’s no leveraging involved, which further reduces risks.

My position could shift if we see a major house price crash, but that will take several years to play out. I reckon it makes more sense to buy shares today, and reinvest those dividends for growth over the next 10-15 years. Then when I finally retire, I can draw my dividends as passive income.

That certainly looks like a better approach than becoming an amateur landlord, although every investor is different.

The post I’d rather generate passive income from shares than buy-to-let appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. 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.

Now may look like a bad time to buy FTSE 100 shares, but I beg to differ. Today’s turmoil offers a brilliant buying opportunity, but with three provisos.

At The Motley Fool, we never like to waste a stock market crash. Or even a dip, like the one the FTSE 100 is suffering at the moment. 

The index of top UK shares has been relatively resilient in 2022. It is down 8.09% year-to-date while the US S&P 500 has crashed 23.49%. Yet the FTSE 100’s relatively smaller drop is still throwing up lots of share buying opportunities for me.

FTSE 100 offers me great value

When an individual stock falls sharply in value, I tread carefully. Usually that’s due to a bad piece of company news, such as a profit warning, reduced dividend, or some other nasty that weighs on its prospects.

When the whole FTSE 100 falls, it’s a different matter, as good companies are sold off with the bad. Investors are fleeing risk right now, as today’s problems aren’t going away soon. Post-Covid supply shortages, war in Ukraine, and (crucially) rising interest rates are combining to destroy investor sentiment.

These problems will hit some sectors harder than others. Housebuilders such as Barratt Developments will suffer as rising mortgage rates hit demand. So will asset managers such as Schroders, as markets go haywire. Supermarkets like Sainsbury’s are also suffering, as customers buy less or trade down.

By contrast, luxury goods maker Burberry Group is on safer ground as the wealthy are less affected by the cost-of-living crisis. So is spirits maker Diageo, as its customers need a stiff drink right now.

I’m focusing my attention on companies that have been hit hardest, as their share prices have fallen most. They offer a tempting combo of dirt-cheap valuations and astonishing yields. I’ve just taken a punt on housebuilder Persimmon. I’m worried I may regret this, but found its 19.49% yield and valuation of just 4.81 times earnings too ridiculous to resist.

I’m now caught between buying Tesco for long-term income and growth, or investing in Rolls-Royce shares in the hope they will lead the charge when markets recover.

Three ways I reduce risk

The big risk is that markets could fall further from here, but I’m happy to take that chance for three reasons. First, it’s impossible to buy right at the bottom of the market. Today’s lower prices are good enough for me.

Second, I’m building a balanced portfolio of FTSE 100 stocks on top of that, to turbo-charge my growth. I aim to hold at least a dozen, so if one or two fail to deliver, hopefully the others should more than compensate.

Finally, and most important, I’m only buying shares that I plan to hold for the long term. That means at least 20 years, which should give plenty of time for the FTSE 100 to rebound from its current troubles.

Sometimes I have to steel myself to click the ‘buy’ button but if I wait until after the FTSE 100 has recovered, then the same stocks should cost a lot more than they do today.

The post I don’t care if FTSE 100 shares fall further, I’m buying them today appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Burberry, Diageo, Schroders (Non-Voting) and Tesco. 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.

This week’s meltdown has put yet another nail in the coffin of buy-to-let, which now looks like a costly way of generating passive income in retirement. I have favoured shares for some time, and this only confirms my view.

Buy-to-let was once a glorious investment, as property prices and rental income rolled ever higher. It has slowly been destroyed by higher taxes, reduced allowances, tougher regulations, and now rising interest rates.

I’m buying stocks for passive income

Stock markets have also taken a beating this year, but they still look like a far better way of building a steady stream of passive income to me.

A portfolio of shares seems much easier to manage than a buy-to-let property. I can buy and sell shares in seconds, take all my returns free of tax inside a Stocks and Shares ISA, then basically ignore them, if I choose. By contrast, buying property takes months, has high upfront and ongoing costs, and involves a lot of bother in finding tenants, completing tax returns, and paying tax to HMRC.

I wouldn’t buy a property right now even if I could get a mortgage, but I am happy to go hunting for bargain UK shares. The FTSE 100 has fallen this year, by 8.73%. That means I can buy top companies on the index at low prices.

Barclays now trades at just four times earnings and yields 3.97%. Tobacco maker Imperial Brands Group trades at 7.6 times earnings and yields 7.37%. Mining giant Rio Tinto is valued at just four times earnings, and its yield is a staggering 15.08%.

The FTSE 100 can even give me exposure to the property market through a housebuilder such as Barratt Developments. It trades at 4.5 times earnings and would give me a passive income of 9.95% a year. 

Tax-free returns inside a Stocks and Shares ISA

Of course, buy-to-let could bounce back. If house prices fall sharply, there could be some real bargains around. Mortgage rates may only see a temporary spike. Good property is still in short supply, and that drives tenant demand.

Shares can be risky. Global markets are in meltdown right now. Dividends can be cut, at any time. Profits could fall, and share prices follow. 

Barratt, as a house builder, is exposed to a house price crash. Its share price is down 11.51% in the last week alone. Over five years, it has fallen 38.93%. If the Bank of England hikes interest rates to 6% as many predict, demand for new builds will fall because buyers will no longer be able to afford them.

Yet I think UK shares are a much better way to build the passive income I’m after. My strategy would be to buy them at today’s dirt-cheap prices, and hold them for years and years.

I will build a balanced blend of a dozen FTSE 100 stocks or so, to spread my risk. When I retire, the passive income they pay will underpin my pensions. It all seems a lot more straightforward than buy-to-let.

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.

The post Buy-to-let is in trouble so I’ll generate passive income from shares instead appeared first on The Motley Fool UK.

More reading

• Why is everyone buying GSK shares?
• £10,000 invested in easyJet shares at the start of 2026 is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• 5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Harvey Jones doesn’t hold any of the shares mentioned in this article. The Motley Fool UK has recommended Imperial Brands. 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.