For investors hunting stocks that pay regular passive income, the FTSE 100 can be a rich hunting ground. It’s packed with mature blue-chips offering yields between 5%-7%, and the best of them have long records of rewarding shareholders.
But you can’t just pick any high-yielder or you could get caught in a dividend trap. So here’s a few things to look out for.
Which stocks are best for income
The first thing I look for is simple: visible earnings, regulated or sticky cash flows, and a balance sheet that doesn’t look stretched. That’s why sectors such as utilities, consumer staples, real estate investment trusts (REITs) and some energy groups often come up in income screens.
Here’s the basic maths. A 6% yield on £20,000 would pay about £1,200 a year. If those dividend returns were reinvested and compounded over 10 years, the payout could grow to around £2,144 – and that’s before any dividend growth is added. Contribute to the investment regularly and the payout grows exponentially.
To achieve optimal returns, most investors use a Stocks and Shares ISA because dividends and capital gains are sheltered from UK tax. That makes a big difference if you’re building income for the long term.
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.
What stocks to pick
When I try to identify income shares, I screen for a few key factors first:
- How long has the company paid dividends?
- Is the payout covered by earnings or cash flow?
- Is the debt load sensible, or is it relying on borrowing to keep distributions going?
Imperial Brands (LSE: IMB) is a good example of a stock to consider for income. The shares are up 69% over five years, the yield typically hovers near 6%, and the latest dividend payout ratio is 75.68%.
The tobacco giant’s also lifted its annual dividend by 4.5% for the past two years running, and has paid dividends for 29 years. The final dividend per share rose from 137.7p in 2020 to 160.3p in 2025.
But there’s a catch. Imperial Brands reported adjusted net debt to EBITDA of 1.8x in 2024, and it expects leverage to stay at the lower end of its 2-2.5 range.
For a tobacco business, that’s manageable, but it still deserves attention because the sector faces regulatory pressure and shifting smoking habits.
Too risky?
Investors hunting something a bit more predictable might prefer to think about British Land. It has a slightly lower 5.65% yield but with far less debt risk – it has £1.8bn of undrawn facilities and cash, with no need to refinance until late 2028.
The company’s outgoing chief executive, Simon Carter, recently said:
“The continued occupational strength of our key markets and the resulting above inflation rental growth gives us confidence for the future.”
Quick comparison:
| Imperial Brands | 6% yield | 75.68% payout ratio | 29 years of payouts |
| British Land | 5.65% yield | £1.8bn undrawn facilities and cash | 47 years of payouts |
These two examples highlight the key trade-off. Imperial Brands may look attractive on yield, but British Land offers a more predictable backdrop.
So investors must ask themselves which matters more: a higher dividend yield, or a more reliable payout?
Should you invest £5,000 in Imperial Brands Plc right now?
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Mark Hartley owns shares in British Land.
