Have £20,000 ready and waiting to invest in passive income stocks? That could generate an enormous extra income stream this year alone. If put to work in a Stocks and Shares ISA, even better. Every penny you earn is yours and protected from HMRC.
Three UK dividend shares have recently grabbed my eye: M&G (LSE:MNG), Chesnara (LSE:CSN), and Octopus Renewables Infrastructure Trust (LSE:ORIT). The reason? Each of their dividend yields for 2026 sits well above 6%.
If City forecasts are correct, a £20k ISA investment spread across all three will provide a £1,580 passive income to enjoy. I’m confident their dividends will rise steadily over time as well, providing an even-juicier income for investors to reinvest or live off.
Want to know why? Read on.
A FTSE 100 hero
The yield on M&G shares is an enormous 7.4%. And the firm’s raised dividends consistently since it listed on London’s stock market seven years ago.
This reflects M&G’s brilliant cash generation, underpinned by its fee-producing asset management arm and life insurance book. This means it enjoys strong capital reserves it can use to fund dividends even if earnings lumpiness sets in. As of December, its Solvency II ratio was 242%, the strongest in the sector.
So what could deliver long-term dividend growth at M&G? I’m personally confident that peoples’ rising interest in financial planning and a growing elderly population will deliver increasingly strong cash flows. Be mindful that fierce competition could impact future earnings, though.
Another cash machine
At current prices, the dividend yield on Chesnara shares is 6.7%. What’s more, it also has an impressive record of dividend growth, with cash payouts increasing each year since 2004. Incidentally, that’s also when it listed on the London Stock Exchange.
Like M&G, Chesnara’s operations are capital light, giving it more cash to return to shareholders instead of having to reinvest in the business. Its purpose is to purchase and operate life insurance and pensions policies, and to collect a steady flow of cash until they expire. Perfect for dividends, right?
On the downside, Chesnara’s future profits and dividends could suffer if opportunities to acquire fresh policies dry up. It’s a risk, though in my view it’s a remote one, given the favourable demographic trends coming its way.
A 9.7% income opportunity?
Octopus Renewables Infrastructure Trust packs the highest yield of all these passive income stocks. This is 9.7%, more than three times the FTSE 100 average of 3%. Payouts have risen for five straight years.
Dividends from renewable energy stocks can be volatile for reasons out of their control. More specifically, when the sun doesn’t shine or the wind is calm, power generation can slump, hitting earnings.
But Octopus’ diversified business model significantly eliminates this threat. Its operates solar farms and wind farms — both on- and off-shore in terms of the latter — and its assets are spread across Europe, from Finland and France, to the UK, Ireland, and Germany.
The trust’s essential operations allow it to funnel a steady flow of dividends to its investors. I’m confident they’ll grow over time, too, as demand for clean energy heats up.
Should you invest £5,000 in Chesnara Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Chesnara Plc made the list?
Royston Wild does not hold any positions in the companies mentioned.
