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I’m a massive fan of passive income, but what it is? Passive income is earnings that come from outside of paid work. For younger adults, this might be from a side hustle. For older folk, it might come from of savings interest or pension payments.
Billionaire philanthropist Warren Buffett has this to say about unearned income: “If you don’t find a way to make money while you sleep, you will work until you die.” That’s why my wife and I aim to maximise our passive income before we retire.
Sadly, many British adults fail to grab their share of a huge stream of passive income waiting to be seized. What is this river of gold?
Delightful dividends
You might have heard of the FTSE 100 — the UK stock market’s elite index, consisting of the largest London-listed companies. Today, the ‘Footsie’ is valued at £2.4trn, which is nearly £83,000 for each of the UK’s 29m households. Of course, some Brits have no savings and investments, while others are vastly wealthy. Thus, the UK’s wealth is very unevenly spread.
Market analysts expect FTSE 100 companies to pay out £86n in dividends for 2026. What are dividends? These regular cash payments are paid by some companies to their shareholder owners. That said, many listed businesses do not pay out dividends. Also, future payouts are not guaranteed and can be cut or cancelled at short notice.
The expected dividend yield for the Footsie works out at around 3.6% for 2026. While this beats the current rate of inflation (3.2% in November), it’s less than the best interest rates paid by top savings accounts. However, share prices tend to rise over long periods, with the FTSE 100 also surging by 19.7% over the past 12 months. Yay!
Dividend dynamos
Probably the easiest and simplest way to grab a share of this FTSE 100 passive income is to buy a low-cost index tracker or similar exchange-traded fund. Generally speaking, the lower the yearly fees, the better off investors will be in the long run.
What’s more, my wife and I also like buying high-yielding shares — stocks offering generous dividend payments — for our family portfolio. For example, we are big fans of investment firm Legal & General Group (LSE: LGEN) for its market-beating dividend yield.
Currently, L&G shares deliver a delicious dividend yield of 8% a year. That’s more than twice the cash yield on offer from the wider FTSE 100. However, history has taught me that some shares offering ultra-high dividend yields turn out to be lemons, rather than cherries.
For me, a yield of 10%+ a year is a red flag, but L&G is not in this ballpark. Also, the group has billions of pounds of spare capital sitting on its balance sheet to protect against future losses.
Even better, this Footsie firm has raised its dividend every year since 2020. The payout per share has leapt by 21.6% from 17.57p for 2020 to 21.36p for 2024, with 2025’s final payout also set to rise.
Finally, we paid 247p a share for our L&G shares, versus today’s share price of 267.7p. That’s a modest gain of 8.4%, but we’re really in L&G for powerful passive income. However, if dividends were suddenly slashed and reset much lower, then that could be our sell signal!
