Passive income investing is growing in popularity, and I see that as a very good thing.
But we can make mistakes if we’re not careful. I rate these as some of the biggest…
Avoid dividend greed
Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.
— John D. Rockefeller
Am I going against one of the wealthiest Americans of all time? Well, no. But it can be a mistake to focus solely on the highest dividend yields.
Sometimes the cash just isn’t there to sustain a big dividend, and it ends up being cut — the way Vodafone slashed its payments in half in 2025. Many investors now see Vodafone’s rebased dividend as an attractive proposition, to be fair. But it made a dent in some passive income portfolios at the time.
The converse is that it can be a mistake to assume the worst and just assume a big yield is a no-go. I see Greencoat UK Wind, with its 10% yield, as an example of that. The renewable energy company is struggling with weaker asset values, which is a risk. But it’s raised its dividend ahead of inflation for 12 years in a row — and plans to keep doing so.
Ignore total return at your peril
Know what you own, and know why you own it.
— Peter Lynch
Do you buy a stock just because it’s a dividend stock? Or because it’s a growth stock? All companies, over the long term, are potentially both. And we really should balance how well they do on a combination of cash returns and share price moves.
BT Group (LSE: BT.A) has been a popular dividend stock for many years, and still is. We’re looking at a forecast yield of around 4.1% for the current year. That’s not huge, but BT has a strong dividend policy. At FY26 results time in May, the company reiterated its plan “to grow the dividend by low to mid single digit percent per annum in FY27 and onwards“.
Keeping the dividend going is one thing. But things like soaring debt and huge capital expenditure tends to mean something has to give. And look what’s happened to the BT share price. It’s fallen 53% over the past 10 years.
I’m not saying don’t buy BT. I’m just saying… it’s best to examine all aspects of a company before you consider buying it.
Don’t get too focused
We can all search out companies that pay decent progressive dividends. Then narrow it down to those generating enough cash to keep going, and with good track records and dividend policies. And then check the long-term share price performance and be happy the company isn’t destroying value through unwise use of cash.
And then step back and notice… a passive income portfolio concentrated in just one or two sectors.
It’s partly because, at any one time we often see a particular sector or two doing well. And we also tend to focus on the businesses we know best.
So, find good companies that can generate high long-term total returns… but don’t forget to diversify too.
Should you invest £5,000 in Bt Group Plc right now?
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Alan Oscroft does not hold any positions in the companies mentioned.
