With the average dividend yield of the FTSE 100 only around 3% at the moment, passive income investors have a tougher job searching for long-term cash generators. Legal & General still leads the top index with a forecast 7.6%. And there are a few up in double digits in the FTSE 250 , including Greencoat UK Wind (LSE: UKW) on 10% — though smaller stocks are typically riskier.
I’ve put together a few from the two indexes that I think long-term investors should consider. But as well as a good dividend yield, I also want cover by earnings and dividend growth forecast over three years.
Passive income picks
| Stock | Index | Dividend yield | Forecast P/E | Cover by earnings | 3-year dividend |
| Legal & General | FTSE 100 | 7.6% | 9.1 | 1.4x | +6.8% |
| Aviva | FTSE 100 | 6.1% | 12.2 | 1.3x | +21% |
| Persimmon | FTSE 100 | 5.7% | 10.4 | 1.6x | +17% |
| Greencoat UK Wind | FTSE 250 | 10.0% | 7.8 | 1.2x | +12% |
| MONY Group | FTSE 250 | 7.0% | 10.4 | 1.3x | +12% |
In my view, those all show attractive passive income characteristics. And if we swapped out one of the FTSE 100 insurers for one in a different sector, we’d be looking at a decent bit of diversification too. It’s looking like a candidate for the perfect passive income starter portfolio.
Income investors often caution against just picking the biggest dividend yield. A lower yield can be worth a lot more over the long term than an immediate here-today-gone-tomorrow high yield.
But today I’m taking a closer look at… yes, Greencoat UK Wind, with its huge forecast 10%. However, I still wouldn’t buy it just because of the yield. No, I’d want to know what’s behind it and whether the dividend is sustainable.
12 years in a row
The company’s aim is to provide investors with an annual dividend that increases in line with CPI inflation while preserving the capital value of its investment portfolio in the long term on a real basis through reinvestment of excess cash flow.
— FY 2025 results
As well as a 12th consecutive year of dividend increases in line with or ahead of inflation, Greencoat returned £109m via share buybacks in the period.
So, a nice fat yield, cover by earnings, and management committed to keeping the dividend growing. Surely we can’t have it all this good? Well actually, no.
Greencoat faces a problem, though it might only be a short-term one. And I think we could still be looking at a compelling investment case. Asset values of the company’s wind farms have been falling — hit by rising interest rates used to value them. And the company is in the process of selling off some assets “to protect and build shareholder value” — in the words of chair Lucinda Riches.
Battling headwinds
Whether dividend rises can be maintained is a question we need to think about. Right now, cash generation seems to be strong. But any threat to it, or the asset-value problem continuing much longer, could lead to further flatlining for the share price.
But Greencoat UK Wind is very much on my list of passive income candidates. And I reckon income investors should consider it.
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Alan Oscroft owns shares in Aviva and Persimmon.
