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Incomes passive revenue within the inventory market’s fairly simple. All buyers need to do is purchase shares in a enterprise that pays dividends, then simply sit again, loosen up, and watch the cash roll in.
In fact, in apply, this technique doesn’t all the time work out as anticipated. That’s as a result of dividends aren’t assured. And typically, even when a inventory guarantees to pay a excessive yield, that revenue by no means materialises, luring buyers right into a entice.
Happily, there are a number of sneaky ways buyers can use to keep away from these pitfalls. So with that in thoughts, how a lot passive revenue might somebody with £20,000 realistically earn from shares?
Dividends from the FTSE 100
Let’s begin with the most well-liked inventory market investing technique in Britain – index funds. Quite than choosing particular person shares, buyers can merely spend money on a FTSE 100 tracker, or related, gaining an immediately diversified portfolio that generates passive revenue.
So how a lot can buyers anticipate to make with this technique?
Traditionally, the FTSE 100’s generated a complete return of round 8% a 12 months over the long term, with half of that coming from dividends. Nonetheless, in 2025, with UK large-cap shares reaching document highs, the yield’s really a bit decrease, at 3.2%.
Meaning a £20,000 funding will generate a dividend revenue of £640 immediately – assuming, after all, that dividend payouts aren’t abruptly reduce tomorrow. That’s actually nothing to scoff at. However buyers can probably do significantly better.
The ability of inventory choosing
Although the FTSE 100 is barely providing 3.2% immediately, the story’s fairly totally different for a few of its constituents. Take Authorized & Normal (LSE:LGEN) as an ideal instance to think about.
In the present day, the life insurance coverage large’s paying out a jaw-dropping 9.1% yield! That’s the best within the index, and with £20,000, it’s sufficient to unlock £1,820 a 12 months – virtually thrice as a lot as index buyers.
Nonetheless, as beforehand talked about, excessive yields will be deceiving. So is that this payout really sustainable?
A intelligent technique buyers can use right here is to look at what’s occurring with money circulate. In spite of everything, that is what in the end funds shareholder dividends. Within the case of Authorized & Normal, issues are wanting just a little shaky.
Greater rates of interest have been a strong tailwind in recent times, boosting demand for its pension merchandise. However with rates of interest steadily falling, that tailwind is slowing down. And its as soon as thriving pension threat switch (PRT) enterprise seems prefer it’s shedding its steam.
As a monetary establishment, Authorized & Normal continues to look sturdy with a strong capital reserve that far exceeds the regulatory necessities. However from a money circulate perspective, there are rising considerations {that a} slowdown within the PRT market might compromise payouts.
Is it well worth the threat?
Administration isn’t blind to the potential slowdown. And it’s already making strikes to restructure the enterprise to be extra capital-light, offsetting decrease income with increased margins to take care of money era.
In different phrases, the 9.1% yield might certainly be sustained, unlocking a powerful payout for buyers. However this comes with vital execution threat – one thing buyers must think about fastidiously earlier than leaping in.
Personally, the danger profile is a tad too excessive for my tastes. However fortunately, there are many different FTSE 100 shares providing elevated yields that may very well be right here to remain.
