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:

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.

The post Here’s how you can invest £5,000 in UK shares to start earning a second income in 2026 appeared first on The Motley Fool UK.

Estimating potential returns

Before I can determine the ideal size of my portfolio, I need to figure out what kind of yield I can expect from the stock market. There are two primary ways to generate income. The most popular is collecting dividends paid out from a company’s earnings. Another way is to buy growth shares and sell portions of the stock over time, to bank some of the (potential) capital appreciation.

The average FTSE 100 dividend yield is 3.28%. However, there are 14 stocks with a yield exceeding 5.5%. When I consider options in the FTSE 250 as well, I’m pretty confident in building a portfolio with an average yield of 7%. As for growth stocks, the pace of share price appreciation is a lot more subjective. Popular shares like Tesla (57%), Nvidia (61%) and Amazon (27%) have all performed well in the last year, with the percentage gains shown in brackets. Yet over the long run, I’d say a 10%-12% annualised growth rate is more reasonable.

So, if I invested 50% in dividend shares and 50% in growth stocks, my average yield could be around 9% (although there’s no guarantee I could achieve that). Therefore, to make £2,500 a month, I’d need to have a pot worth £333,333.

This is a lot of money, so investing it all in one go is unlikely. An alternative way to build up to this level could be to invest £500 a month, compounding gains for 19 years. After this point, an investor could then look to enjoy the income. But again, some investors will achieve lower returns.

A high-yield option

When looking for potential dividend stocks, I like GCP Infrastructure Investments (LSE:GCP). It’s a UK-listed investment trust that provides debt financing to UK infrastructure projects. GCP generates returns by earning interest on the loans. Over the past year, the share price is down by 7%, with a current dividend yield of 9.58%.

There are several reasons why I believe it could be a good dividend stock. The public sector often backs the projects, so the income streams are relatively secure compared to more cyclical sectors. The trust also benefits from inflation-linked revenues in some cases, meaning income rises in line with price growth. Further, the portfolio is well diversified across sectors and projects, which spreads risk associated with any one deal.

Putting all of this together, it means that a consistent and sustainable dividend can be paid. The company has been paying out income consistently for over a decade. I believe this trend can continue in the years to come.

Granted, the business is exposed to changes in government policy. If it cuts spending in areas like renewable energy or housing, GCP could suffer as a result.

Yet even with this risk, I’m considering buying the stock to help boost the income side of my portfolio.

The post How big does my portfolio need to be to make £2.5k of monthly passive income? appeared first on The Motley Fool UK.

Renewable energy spark

The first is the Bluefield Solar Income Fund (LSE:BSIF). Over the past year, the stock has fallen by 9%, with a current dividend yield of 9.12%.

The UK-based investment company focuses on generating long-term income for investors by investing in renewable energy assets, primarily solar energy installations. It owns and operates a portfolio of solar farms, generating money by selling the electricity, as well as benefitting from government grants and subsidies.

It has a strong track record of paying out income, having done so on a consistent quarterly basis for over a decade. The business model suits it well, given that the electricity supply contracts it has in place offer predictable cash flow. In the interim results from February, the dividend cover was 1.5. This means the current earnings can easily cover the dividend payments, with funds left over. This bodes well for the future.

Of course, one risk is the fluctuations in the electricity price. It’s a commodity, just like oil and gold, so demand and supply can cause large price movements. If power prices fall significantly, it would negatively impact revenue.

Funding mainstream projects

A second option is GCP Infrastructure Investments (LSE:GCP), which currently has a very generous yield of 9.75%. This is well above the UK base rate of 4.5%.

The stock is down a modest 4% in the last year, with it trading at a high 31% discount to the net asset value (NAV). This refers to the value of the assets within the fund, in comparison to the stock price. Over the long term, these two figures should match up, but differences can exist in the short term. The fact that the share price is so far below the NAV can indicate that the company is undervalued.

Within the fund, it generates income by providing loans to entities involved in UK infrastructure projects. These loans are typically secured against cash flows backed by the UK public sector, such as payments from government departments, local authorities, or NHS trusts. As a result, I believe the dividend payments are relatively safe, given the reliability of the debtors.

The risk some might have on their mind is that providing any form of loan means that there’s potential for defaults. Given the size of some of the projects, even one default has the potential to significantly impact the operation of the business.

Due to the 9%+ dividend yields, I think both stocks fairly compensate an investor for the associated risks. Therefore, investors who are considering adding income shares to their portfolio may want to consider including these two.

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