Earning passive income on the stock market is simple, right? Put £20,000 into a share yielding 9%, pocket £1,800 of cash payouts a year and Bob’s your uncle.
The catch is that very high yields often come with very real worries. The market may be pricing in debt, weak profits or a dividend cut. In reality, it’s not that simple.
That’s why I prefer to aim for a moderately high yield that has a better chance of still being paid in five years.
One low-drama route is to split your £20,000 investment across a diverse mix of stocks, such as Legal & General (LSE:LGEN), LondonMetric Property and M&G.
Three shares, three risks
Diversification sounds dull, but it’s critical: sectors don’t all fail at the same time for the same reason. That provides a buffer. For example, an investor could split £20k as such:
| Share | Allocation | Yield |
|---|---|---|
| Legal & General | £7,000 | 7.5% |
| LondonMetric Property | £7,000 | 7.1% |
| M&G | £6,000 | 6.43% |
That achieves a yield just above 7%, equating to about £1,408 a year in income.
Legal & General: the income engine
With a forecast 2026 dividend yield of 7.5%, Legal & General’s the most appealing stock to consider here, I feel. On top of that, it boasts an impressive buyback yield of 3.76%.
Half-year results showed core operating profit up 7% and core operating earnings per share up 11%. For an income-focused stock, that’s decent growth and should help support further dividend growth.
The interim dividend rose 2% to 6.24p, continuing a theme of similar increases last year. The company also completed a further £450m of its £1.2bn share buyback programme.
The company aims to continue its 2% annual dividend growth between 2026 and 2028, giving the income a chance to keep pace with rising prices.
But while L&G has an excellent track record, it isn’t risk free. Insurance is a cyclical industry, and if the UK markets dips, earnings – and the share price – could suffer.
LondonMetric and M&G: the balance
LondonMetric Property owns logistics warehouses and other long-lease properties. Net rental income rose more than 8% to about £240m in the six months to 30 September, with average rent-review uplifts at 17%.
It’s reportedly on track to meet analysts’ earnings consensus for the year ending March 2027. Its dividend is fully-covered by earnings and rose 3.8% to 12.45p in the year to March. LondonMetric Property still faces risks from borrowing or weaker valuations, but REIT rules help make the dividend more reliable.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
M&G, meanwhile, adds a different finance angle, focused on active asset management and long-term savings rather than insurance and retirement-income.
Its dividend is supported by strong first-half results: adjusted operating profit rose 15% to £435m, helped by £2.4bn of net inflows.
A calmer route to income
This isn’t a magic formula, but a good example of how to balance reliability with yield. Still, dividends can always be cut, markets can fall, rates can move and property values can disappoint.
But an investor targeting a 7% yield with £20,000 could do worse than blend a high-yield insurer, a growing warehouse landlord and a savings-and-investments business.
However, a fully-diversified portfolio should also include some growth and defensive shares. That way, the portfolio’s better protected against volatility and aims to keep pace with inflation.
Should you invest £5,000 in Legal & General Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Legal & General Group Plc made the list?
Mark Hartley owns shares in Legal & General.
This story originally appeared on Motley Fool
