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In 2025, UK shares paid out a total of £87.5bn in dividends. But in 2026, the prize is expected to be even bigger with £88.5bn being returned to shareholders. This just goes to show how much money is out there for investors to earn as a passive income.
Of course, it takes money to make money. So just how much does an investor need to put into the stock market to earn the equivalent of £1,000 a month?
Crunching the numbers
The required size of a portfolio to generate £12,000 a year ultimately depends on the yield the portfolio generates. If an investor’s following the basic strategy of relying on diversified index funds, the amount needed is quite substantial.
Looking at the FTSE 100 today, the UK’s flagship index generates a yield of just 2.9%. At this rate, someone will need to invest a staggering £413,793. The FTSE 250‘s currently a bit more generous with a yield of 3.3%. But that still means £363,636 is needed invested in the stock market.
However, the story could be very different for stock pickers.
A custom-crafted portfolio consisting exclusively of top-notch income stocks that yields 5.5% would only have to be worth £218,182 – almost half what FTSE 100 index investors need. And while that’s certainly still not pocket change, drip feeding a small lump sum every month and letting it compound could enable a portfolio to gradually build to this threshold over time.
Earning a 5.5% yield
Finding UK shares that offer a sustainable elevated yield is often far easier said than done. Don’t forget, higher yields can be a reflection of higher investment risk. But in some instances, taking a contrarian stance can lead to lucrative gains.
With that in mind, let’s take a look at Target Healthcare REIT (LSE:THRL) and its 5.7% payout.
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The company owns and leases a portfolio of 93 modern care homes across the UK, renting exclusively to professional care home operators using long-term, inflation-linked leases.
As a result of this deal structure and client profile, the average duration of a lease is an industry-leading 25.9 years. And when zooming in on the tenants, most of their elderly occupants are privately funding their stay rather than relying on support from local authorities.
That’s a crucial distinction. Why? Because it means Target Healthcare’s rent roll is largely immune to government benefit budget cuts. It also grants management exceptional revenue visibility and explains why rent collection stands incredibly strong at 97%.
It also means that the firm’s generating sufficient cash flow to cover its dividend obligations to shareholders – a terrific sign of sustainability.
So what’s the catch?
What to watch
Even though Target Healthcare’s property portfolio is private-pay, weakness from local authority underfunding can nonetheless spill over. At the same time, rising regulatory restrictions and staffing shortages are making care homes increasingly expensive to run.
Needless to say, if tenant profitability deteriorates, Target Healthcare’s rent collection could face defaults or requests for rent reductions – something that has happened throughout its history.
Nevertheless, while there’s undoubtedly risk, long-term structural demand paired with robust cash flows makes this income stock worth investigating further, in my opinion. And there are other dividend-paying UK shares on my radar right now as well.
