For traders trying to construct passive revenue, UK dividend shares can provide a gradual stream of money.

The FTSE 100 index has a median dividend yield of round 3.5% proper now. That’s fairly good, however there are some firms with payouts of 5% or extra. Meaning a £20,000 funding may probably generate over £1,000 in annual dividends.

Listed below are two well-known monetary companies firms which have sturdy yields and lengthy information of regular dividend payouts.

Pensions and insurance coverage large

Authorized & Basic (LSE: LGEN) is without doubt one of the UK’s largest monetary companies companies, specialising in pensions, life insurance coverage, and funding administration. It has been a staple of the FTSE 100 for years and is well-known for its strong dividend coverage.

The inventory is yielding 8.8% as I write on 24 February — considerably above the Footsie common.

Over the previous decade, the corporate has both maintained or elevated its dividend. That consistency is a key cause why many revenue traders comply with the inventory intently.

In its most up-to-date replace, the corporate reaffirmed its dedication to paying out dividends, whereas acknowledging challenges together with ongoing market volatility and low margins.

The share price has had a combined efficiency currently, shifting consistent with broader monetary sector developments. Whereas it has recovered from some lows in 2023, it nonetheless stays under pre-pandemic ranges.

Regular dividend payer

M&G (LSE: MNG) is one other monetary companies large. The corporate has a £5bn market cap and is finest identified for its funding administration and financial savings merchandise. Like Authorized & Basic, it has constructed a repute for regular dividend payouts.

The corporate at the moment boasts a good larger yield of 9.5%. That’s one of many highest within the Footsie and means a £20,000 funding may return almost £2,000 in annual payouts.

Nevertheless, there are some dangers to contemplate. M&G’s share price fell by greater than 10% in 2024, reflecting investor worries about financial situations and potential stress on earnings.

Whereas the corporate stays dedicated to sustaining its dividend, a yield this excessive typically indicators uncertainty. Latest share price falls increase the danger of a ‘value trap’ the place traders are lured by excessive yields solely to see subsequent dividend cuts.

That being stated, M&G has a historical past of rewarding shareholders, and it has said that dividends are a key a part of its technique.

If the corporate can arrest current outflows and proceed to regain its long-term earnings stability, then the sturdy dividend payouts may proceed.

Too good to be true?

When dividend yields climb this excessive, it’s usually price asking why. The market could also be pricing in dangers for each firms given they’re uncovered to rate of interest strikes, regulatory modifications, and market downturns.

If earnings drop, dividends could have to be reduce. This is only one cause why portfolio diversification is so vital.

Investing a £20,000 lump sum into both of those two firms could also be tempting, however I might a lot quite unfold my threat throughout many shares out there to keep away from focus threat and enormous portfolio actions pushed by one or two names.

After all, these are simply a few high-yield shares that traders ought to contemplate. Others inside the Footsie might be able to provide £1,000 in potential annual dividends from the identical funding whereas working in numerous sectors and lowering general portfolio threat.