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UK interest rates have been coming down recently. As a result, the rates on savings accounts have been falling too. The good news is that it’s still possible to generate substantial passive income with dividend stocks. Here’s a look at two UK stocks that offer chunky yields at present and could be worth considering as income investments today.
My favourite UK bank stock
First up, we have HSBC (LSE: HSBA). It’s a global leader in the banking space.
This is my favourite UK banking stock (even though I don’t own it personally today). I like it because it’s globally diversified and has exposure to high growth areas such as Asia and wealth management.
For the 2025 financial year, analysts expect HSBC to reward investors with dividends of around 67 cents per share. That translates to a yield of about 5.7% at today’s share price and exchange rate (income of approx. £285 per year on a £5,000 investment).
Dividend coverage (the ratio of earnings per share to dividends per share) is expected to be around two. That’s healthy and indicates that there’s a low chance of a dividend cut in the near term.
It’s worth pointing out that banking can be a turbulent industry at times. So with a stock like this, investors need to expect some share price volatility.
If one is willing to hold the stock for five years, however (which is generally the minimum recommended time to own a stock), I think there’s potential for solid total returns (dividend income and capital gains).
A very high yield
Next, we have M&G (LSE: MNG). It’s a UK savings and investment company.
It’s not the most exciting company in the world. But it has a good track record when it comes to paying dividends and it offers a high yield at present.
Indeed, for 2025, analysts expect M&G to reward investors with a payout of 20.6p per share. That translates to a yield of about 8.6%.
On a £5,000 investment, that works out at around £430 income per year. Dividend income is never guaranteed, however, and investors should note that the dividend coverage ratio here is a little on the low side at around 1.3 (signalling that there’s a chance of a dividend cut at some stage).
Like HSBC, M&G operates in an industry that can be volatile at times. When financial markets get turbulent, the company’s share price can swing around wildly as investors worry about future profitability.
This company has stood the test of time though, having been around for over 150 years. So, I think it’s worth considering as an income play.
The secret to investing for income
It’s worth pointing out that when investing for income, it’s smart to own at least 15 different stocks. Owning just one or two is quite risky.
If one had £10,000 to deploy, it wouldn’t be smart to put it all into just two stocks. This could lead to disappointing returns if one (or both) of the stocks experienced some problems.
Thankfully, there are lots of great dividend stocks on the London Stock Exchange today. If you’re looking for more investment ideas, you’ve come to the right place.
