We want £2,000 in passive income from an annual £20,000 Stocks and Shares ISA allocation? Easy. Just put it all in shares paying a 10% dividend yield, and watch the cash roll in. Right?
Well, in one sense, it can look that easy. I see a handful of stocks in the FTSE 250 with forecast dividends of 10% or more. In reality, though, we do need to take a bit more care before we consider jumping in with both feet.
For one thing, companies do not guarantee their dividends. History, however, does show that dividends from the UK stock market have generated huge amounts of passive income for shareholders over the decades. Once 2025 is all totted up, analysts expect more than £80bn in dividends from FTSE 100 stocks alone.
One basket?
There’s a fair bit of danger in concentrating our investments in selected dividend stocks. And there are two main ways to reduce the risk. One is to diversify — somewhere between 10 and 15 stocks is a common recommendation. It can be a big help if we spread that diversification across different sectors too.
An additional approach is to be careful over the individual stocks we select. That means paying attention to how the dividends will be paid. Checking there’s enough cash coming in to cover them should be a key priority.
Being cautious does mean we most likely need to settle for an average dividend return of less than 10%. But today, I want to look at one that’s right up there.
What is it?
I’m talking about Greencoat UK Wind (LSE: UKW).
Greencoat owns and operates a portfolio of onshore and offshore wind farms across the UK. It’s structured as a real estate investment trust (REIT), and that can mean added tax advantages for a passive income portfolio.
Companies like this have fallen out of favour with today’s renewed pursuit of oil and gas. And Greencoat shares are well down from their peaks of a few years ago. That, however, has pushed the forecast dividend yield above 10%.
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.
Cash prospects
So, what are the chances of Greencoat maintaining its dividends? Forecasters think it can do it, after the company delivered its twelfth consecutive year of dividend rises in 2025. There was enough spare cash for £109m in share buybacks too. At results time, the board said it’s targeting a 3.4% dividend increase for 2026, in line with inflation.
Chair Lucinda Riches added: “Our structurally high dividend cover model is expected to deliver around £1 billion of excess cashflow over the next five years.“
I see continuing weak sentiment as one of the biggest threats. And if the dividend looks at all like faltering, investors could flee. But Greencoat UK Wind has to be worth considering for the 10% return it could add to a passive income portfolio. And remember, nobody can blockade the wind.
