Making a passive income from UK dividend stocks could be a worthwhile move over the long run. At the present time, over 20 FTSE 100 shares have yields that are in excess of 4%. And, looking ahead, they could potentially offer dividend growth in the coming years in a possible economic recovery.
Of course, investing money in any shares comes with high risks. There’s never any guarantee of dividends or capital growth from any company. However, such risks can be reduced, but not completely eliminated, by diversifying among a wide range of stocks.
Buying UK dividend stocks with attractive yields
Investing money in UK dividend stocks with attractive yields is likely to be an obvious first step when seeking to make a passive income. At the present time, it may be possible to obtain a higher yield from FTSE 350 shares than elsewhere. However, ensuring those yields are relatively reliable and affordable could be crucial in generating a worthwhile income that lasts over the coming years.
Meanwhile, it’s also important to analyse a company’s track record of dividend payouts. Other factors include how affordable its shareholder payouts are based on profitability, as well as its comparative offering versus sector peers. These could all be a means of obtaining a high, yet robust, income return.
While such checks may not always pick up on potential warning signs that lead to lower dividends in future, they can help to lessen that risk to some extent.
Focusing on dividend growth to make a passive income
Although inflation is relatively low at the present time, that may not always be the case. Therefore, buying UK dividend stocks that can offer the prospect of a rising passive income could be a sound move. They may be able to offer some protection against inflation in the long run, in terms of retaining or improving an investor’s spending power.
Identifying which stocks can offer dividend growth is never an easy task. It’s likely to be more of an art than an exact science. However, look out for companies with solid earnings estimates, large dividend cover and a strong financial position. These may be less impacted by the wider economy’s performance and may offer greater scope for dividend growth.
Reducing risks from buying income shares
As mentioned, investing money in UK dividend stocks comes with high risks relative to many other assets. Although those risks can never be reduced to zero, they can be lowered by analysing the companies being purchased and assessing their financial position.
Risks can also be limited by diversifying across a wide range of companies. This may lead to a more resilient passive income that offers greater scope for growth in the long run. The result may be a more robust outlook from a portfolio of UK dividend shares.