UK shares offer a significantly higher passive income than other asset classes at the present time. However, the 2020 stock market crash showed they also carry greater risks.
As such, building a diverse portfolio of high-quality companies could be a sound move. Buying those shares that have dividend growth potential may further enhance an investor’s income return in 2021 and in the coming years.
Opening a Stocks and Shares ISA to make a passive income from UK shares
Before buying any UK shares to make a passive income in 2021, opening a Stocks and Shares ISA is a logical first step. It offers a low-cost means of efficiently investing money without paying capital gains or dividend taxes. Moreover, it’s simple to open an ISA, and withdrawals can be made at any time without penalty.
FTSE 100 and FTSE 250 shares offer greater income returns at the present time than assets such as bonds and cash due to low interest rates. Meanwhile, high house prices make buy-to-let unaffordable. And with lower yields, that could also make it less attractive to income investors. However, as mentioned, shares are risky assets. Therefore, it’s imperative to build a diverse Stocks and Shares ISA that contains UK shares with resilient financial situations. Those that are able to deliver a robust passive income over the long run.
FTSE 100 and FTSE 250 dividend investing opportunities
Despite a recent stock market rally, many UK shares offer an attractive passive income at the present time. For example, SSE and GSK currently have 5%+ dividend yields. Meanwhile, utility stocks such as National Grid, Severn Trent and United Utilities offer 4%+ dividend yields that may prove to be relatively resilient in case of further economic challenges ahead.
In terms of dividend growth opportunities, stocks such as AstraZeneca, Unilever and Reckitt Benckiser could deliver attractive earnings growth in the coming years. This may filter down into a rising dividend for their investors. Meanwhile, stocks such as Imperial Brands and British American Tobacco could become more popular as they adapt to changing consumer tastes in the cigarette/e-cigarette categories. They’re also seeking to improve their balance sheets, which could strengthen their financial prospects in the years ahead.
Investing £250 per month in 2021
Clearly, investing £250 per month in UK shares is unlikely to produce a large passive income straightaway. However, over time, it can build to a surprisingly large portfolio size that goes on to offer a generous income return in the long run.
Many FTSE 100 and FTSE 250 shares are currently offering high yields compared to their historic averages after the 2020 stock market crash. So now could be the right time to start investing in a diverse range of dividend shares. They may offer high income returns in 2021, as well as dividend growth over the long run.