If I had £30,000 burning a hole in my pocket, what would be best way to get exposure to high-yield shares? Here’s are two possible strategies that could supercharge my passive income.
The traditional way
One way is to purchase a wide selection of dividend shares. This helps to ensure a smooth flow of dividend income at all points of the economic cycle.
Banks, oil majors and miners, for instance, can be generous dividend payers when the economy’s growing. But the level of cash rewards from cyclical shares like these can slump during downturns.
This is why buying defensive stocks alongside them can be a good idea. Utilities, defence contractors and telecoms providers typically generate stable earnings over time, allowing them to consequently provide a reliable dividend.
This is why, for example, a £30,000 portfolio invested in HSBC, BP, Rio Tinto, Centrica and Verizon Communications could be a good idea. If broker forecasts are accurate, such an investment would throw up £1,830 in dividends in 2025 alone.
This is based on an average dividend yield of 6.1% across these UK and US shares. Over time, I’m confident the total dividends I receive would steadily increase too.
A more modern route
Another effective way to build a steady income might be through a dividend-focused exchange-traded fund (ETF). These financial instruments have been around for decades. But they are soaring in popularity as investors seek a simpler way to balance risk and reward.
According to Hargreaves Lansdown, the percentage of ETF investors on its books has more than doubled between 2015 and today. The number of funds on the market has rocketed as demand’s risen.
One ETF that I as a dividend investor like is the iShares MSCI Target UK Real Estate (LSE:UKRE) ETF. As the name implies, it invests in a range of property stocks, and more specificially real estate investment trusts (REITs). Key holdings include FTSE 100-listed Segro and Land Securities.
In return for tax perks, these firms pay at least 90% of annual rental earnings out by way of dividends. This can make them excellent income generators, and so this ETF carries truly brilliant dividend yields. On a 12-month trailing basis this sits at 6.58%.
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.
If the yield remains stable for 2025, that £30k investment described above would make me around £1,930 in income next year. And again, the dividends I receive could steadily increase over the long term.
Which is best?
With holdings in 36 different REITs, this stock enables me to spread risk effectively. But there is a drawback.
As an investor I lack control over stock selection. In the case of the above REIT, for instance, I might not be happy with owning Unite Group if I’m bearish on the student accommodation market.
That said, I think buying individual stocks as well as ETFs can be a great way to make a market-beating passive income. It’s why I own high-yield shares and funds in my own portfolio.
The post Here’s how I’d target a near-£2k passive income by investing £30,000 in high-yield shares appeared first on The Motley Fool UK.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Royston Wild has positions in Rio Tinto Group. The Motley Fool UK has recommended HSBC Holdings, Hargreaves Lansdown Plc, Land Securities Group Plc, and Segro Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
