So far, 2026 has been a solid year for investors. The UK’s FTSE 100 index is up 7.2% this calendar year, excluding cash dividends. Meanwhile, the US S&P 500 has risen 9.3% and the tech-heavy Nasdaq Composite has jumped 11.2% in 2026. I’m happy with these returns, because my family portfolio owns US stocks for growth and UK shares for their generous passive income.
What is passive income?
Passive income is unearned — in other words, it comes from activities other than paid work. For example, popular forms include:
1. Savings interest from cash deposits held at banks or building societies — safe but boring, perhaps?
2. Rental income from letting out property (being a buy-to-let landlord) — too much hassle for me.
3. Interest from government and corporate bonds — not risk-free, but less risky than owning shares. (We invest in bonds through low-risk money-market funds.)
4. State and company pensions — only accessible to people over, say, 55 years old.
5. Share dividends — a riskier way of generating income, but my favourite by far.
What are share dividends?
When companies make profits, they can use these in many ways. Some firms invest in their future growth, while others make acquisitions by buying or merging with other companies. Some businesses use their excess cash to buy back their shares, thus reducing their share base to enrich the remaining shareholders.
As a fan of ‘free money’, I really like when corporations return their excess cash to shareholders as dividends. Typically, these cash distributions are made quarterly, six-monthly, or yearly. However, most listed companies don’t pay dividends, sometimes because they are loss-making.
Another hiccup is that future dividends are not guaranteed. Hence, they can be cut or cancelled at short notice. When times get hard, these cash payouts can be scrapped, as happened repeatedly during the Covid-19 crisis of 2020/21.
Delicious dividends
One FTSE 100 share my family portfolio owns for its powerful passive income is Legal & General Group (LSE: LGEN) — known as L&G (or ‘the Striped Umbrella’ after its colourful logo). We bought our stock around four years ago at 247p a share.
Founded in a London coffee shop in 1836, this 190-year-old business is one of the UK’s largest money managers. Today, it looks after £1.2trn of assets across three divisions: Institutional Retirement, Asset Management, and Retail.
As I write, L&G shares stand at 291.2p, valuing this group at £16.1bn. At this level, they offer a dividend yield of 7.5% a year — far more than any savings account — but also riskier, right? For me, that’s a generous reward for owning part of this great British business.
Meanwhile, our stake has increased in value by 17.9%, which is an added bonus. However, this is only a paper gain, as I intend to own this stock for the long term. Also, we reinvest all dividends by buying more shares.
Finally, as a global asset manager, L&G’s health is closely connected to capital markets. When the next big recession or stock-market crash arrives, the company’s revenues, earnings, and cash flow could tumble. Even so, we will hold tight and keep reinvesting our juicy dividends into buying yet more L&G shares.
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Cliff D’Arcy has an economic interest in Legal & General Group shares.
