Image source: Getty Images
UK income investors are spoilt for choice right now, with dozens of UK dividend shares yielding more than 7%. The challenge is working out which payouts might actually prosper if interest rates start to fall in 2026 rather than collapse at the first sign of trouble.
After one of the sharpest tightening cycles in decades, UK base rates started to drop again in 2025. Cash savings and gilts have offered decent returns this year, but income seekers may start to see dividends as more preferable from next year. At the same time, market pessimism has pushed several well‑known UK shares into very high‑yield territory, often above 7%.
Here are seven such names that could stand to benefit if borrowing costs ease in 2026, while also highlighting the risks that come with yields this elevated.
| Stock | Yield |
|---|---|
| WPP | 9.6% |
| Legal & General | 8.7% |
| Paypoint | 8.6% |
| Ithaca Energy | 8.4% |
| B&M European Value Retail | 8.4% |
| M&G | 7.4% |
| Land Securities Group (LSE: LAND) | 7% |
Above all, Land Securities Group stands out as a key income opportunity, in my opinion.
The yield/rate advantage
As a large UK real estate investment trust( REIT), Landsec’s asset values and equity valuation are heavily influenced by property yields and discount rates, both of which tend to move with interest rates.
Management has explicitly highlighted that previous rate rises put upward pressure on valuation yields, weighing on capital value. Encouragingly, the outlook now appears more balanced as rate expectations stabilise.
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.
Company reports indicate that roughly 60% of the portfolio was already stable in value in the second half of FY24, with yields largely flat and best assets (especially major retail) seeing small valuation gains. This suggests scope for a cyclical upswing if financing costs ease and investment activity picks up.
EPRA, the favoured measure for property earnings, came in broadly stable at about 50p per share in FY24, with dividend per share up 2.6% and covered around 1.27 times. Guidance suggests earnings per share (EPS) in FY26 could be slightly ahead of this level as rental growth and capital recycling work through.
Loan‑to‑value is in the low 30% range and average debt maturity is close to 9.5 years, which gives Landsec room to invest into a recovery. Lower rates would also reduce the drag from finance costs over time given net debt of roughly £3.5bn.
Operational strengths in a lower‑rate world
Occupancy across the combined portfolio is high, at around 97%. Office, retail and leisure segments generally show positive like‑for‑like rental growth and relettings at premiums to previous rents and ERVs. This supports the idea of a resilient income base if rates fall and growth remains solid.
Major retail destinations delivered like‑for‑like net income growth of about 6.9%, with occupancy above 95% and a small second‑half valuation increase, highlighting how ‘fewer, bigger, better’ physical locations can benefit from both operational and valuation leverage when capital becomes cheaper.
Risks to consider, even if rates fall
A rate‑cut cycle driven by recession rather than a ‘soft landing’ could hurt rental demand and values, offsetting any benefit from cheaper money. Management itself flags that short‑term valuation yield moves are outside its control and that returns can fall outside the 8%-10% return on equity (ROE) target in tougher years.
Still, it’s a stock worth considering – and offers a good example of the factors to assess when hunting income shares in a lower-rate environment.
