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What’s not to like about passive income? The concept of earning money for doing very little certainly appeals to me. And with the State Pension currently around 30% of average earnings — and the age at which people qualify likely to increase further — I think it’s never too late to start looking at dividend shares.
But how many are needed to have a decent retirement?
Some important numbers
According to Pensions UK, a single person needs £43,900 a year (£3,658 a month) to live comfortably in old age. To achieve this, a portfolio of £439,000 of dividend shares — yielding 10% — would be required. But history suggests that a return at this level is unlikely. Over a sustained period, 7% is probably more realistic. Under this scenario, an investment pot of £627,143 is needed.
One way to achieve this is to invest £535 a month for 30 years, with all dividends used to buy more shares. Starting as early as possible is to be encouraged. It’s possible to save less for longer and achieve a better result.
One approach
In my opinion, opening a Stocks and Shares ISA is a good way to begin. Up to £20,000 can be invested annually and any income and capital gains can be earned tax-free.
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 next step is to pick some high-yielding dividend shares. Although there are no guarantees, I reckon a look at a company’s recent history of payments to shareholders is a sensible approach. Some pride themselves on offering excellent returns. My own view is that these should be prioritised when it comes to building a portfolio.
A FTSE 250 stock to consider
The highest-yielding share in my ISA is Harbour Energy (LSE:HBR). It’s the largest oil and gas producer in the North Sea and, since floating in March 2021, has steadily been increasing its payments to shareholders.
This is despite facing an effective tax rate of 78% on its earnings from the UK Continental Shelf.
However, in 2024, the group bought the upstream assets of Wintershall Dea. This gave it two advantages. Firstly, it reduced its reliance on the UK. During the first nine months of 2025, 67% of its output came from outside our waters. Secondly, it reduced its operating cost per barrel.
These factors, along with its hedging strategy, means it’s able to offset some of the impact of the windfall tax. For 2025, the group’s anticipating $1bn of free cash flow. Of this, it plans to return $455m to shareholders, meaning the stock’s currently (12 December) yielding an impressive 9.8%.
My view
One issue is that its share price performance has been disappointing — it’s down 54% since December 2020. But to income investors maintaining the company’s dividend is more important.
Admittedly, it faces some challenges here. Oil and gas prices are notoriously volatile, which can impact earnings. And offshore production is difficult. But energy prices are (by recent standards) at relatively low levels and yet it’s still able to generate an impressive amount of cash. It looks to me as though its generous dividend is reasonably secure.
On this basis, I think it’s one to consider as part of a long-term high-yielding share portfolio. But it’s important to spread risk by owning more than one such stock. Fortunately, there are plenty more to choose from at the moment.
