Stock market

5 I will put my whole year’s ISA into UK shares for passive income.

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A number of blue-chip UK shares have pretty juicy yields at the moment.

As an investor, I like to keep my portfolio diversified. But I think that for a £20K stocks and shares ISA, spreading the money across carefully researched and selected blue-chip shares would give me the diversification I want.

Here are the five stocks I would pick.

British American Tobacco

My first choice would be the long term high yielder: British American Tobacco (LSE: BATS).

Why is the stock high yielding (9.9%, to be specific)?

The answer is a combination of decades of annual dividend increases, coupled with declining share prices. Over the past five years, this share of the UK has fallen by 19%.

This reflects a very real threat: declining cigarette consumption in many markets. Less smoking can lead to less revenue and profit.

Still, the cigarette business has remained fairly intact despite its decline. British American has a portfolio of premium brands viz lucky Strike I think cigarettes can help build a business beyond the format. Its cash generation remains strong.

Financial services

There are many financial services firms with high single digit percentage yields that I would happily own in my ISA.

I don’t want to overconcentrate my holdings in any one sector, however, so will only buy two of them: M&G And Legal and General.

I think both firms are poised to benefit from strong long-term demand for financial services. They should be able to continue to grow thanks to their respective brands and customer bases. This could help both of these UK stocks.

One risk I see is a market downturn. This could lead to withdrawals by customers of both firms, hurting profits.

Legal & General yields 8.7%, while M&G offers 10%.

Investment trust

I will also put in some of my ISA. City of London Investment Trust. As an investment trust, it exposes me to dozens of large, mostly British, companies.

If the fund manager makes poor choices, the share price can fall. In fact, it has declined by 1 percent over the past five years FTSE 100 There is an increase of 11%.

Its 4.9% yield attracts me.

The name of the high street

My fifth ISA choice for passive income has a similar yield at 5%: Sainsbury’s.

Demand for groceries should remain strong even as price pressures threaten to erode profit margins. Sainsbury’s has a substantial online business as well as its own traditional network of supermarkets.

Let the income roll in.

I feel that the range of UK shares will give me the right mix of passive income potential and diversification.

The average yield is 7.7%.

So, putting £20K into shares today would hopefully give me around £1,540 in annual dividend income. This equates to around £30 per week.


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