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As 2025 hurtles ever closer, I’m looking for new ways to earn passive income next year.
A lot’s going on in global markets right now, with uncertainty around interest rates and international trade agreements.
By securing a stable flow of secondary income, I can better protect myself against unexpected events. Here are three ideas to consider.
High-yield savings accounts
Lately, many investors are eyeing high-yield savings accounts amid increasing market uncertainty.
In recent months, government bond yields have become particularly attractive due to inflationary pressures. Those seeking safety believe these accounts and bonds are the best low-risk investments.
This week, the Bank of England reaffirmed the benchmark interest rate would remain at 4.75% due to rising inflation. Consequently, UK government bonds (gilts) may become popular options heading into 2025.
But while bonds or savings accounts promise steady income with minimal risk, the returns are often subpar. Such accounts seldom return more than 5%, at best.
So investors with a larger risk appetite are likely to find better returns in individual assets like dividend stocks and real estate investment trusts (REITs).
Dividend Stocks
Earning a second income from dividends has long been a popular choice among UK investors. Companies or ETFs with a long history of increasing payouts are known as Dividend Aristocrats. City of London Investment Trust is one example.
Key industries that benefited from strong dividends in 2024 were financials, REITs and consumer staples.
Despite the evolving economic landscape, many FTSE 100 and FTSE 250 stocks still have opportunities for dividend growth in 2025. Two of my favourite Footsie dividend stocks include Legal & General and British American Tobacco. Both have a solid track record of consistent growth and payments.
Real Estate Investment Trusts (REITs)
REITs are a great way to earn income from property without actually buying any real estate.
With interest rates stabilising or possibly decreasing in 2025, REITs could rebound. Some popular UK-listed REITs are Land Securities Group and LondonMetric Property, both focusing on commercial property in London. Logistics-focused REITs like Segro and Tritax Big Box REIT prefer buying warehouses and business spaces.
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.
My top choice
One of my favourite’s right now is British Land (LSE: BLND). It’s the smallest REIT by market cap on the FTSE 100 but the one with the second-highest dividend yield, at 6.3%.
In 2002, the pandemic forced it to slash dividends in half. But before that, it had an excellent track record of increasing payments. Assuming the property market continues growing, dividends should follow suit.
Of course, there’s no guarantee that will happen. While I’m bullish on the property market in 2025, several risks remain. British Land has a fairly meaty debt pile and limited cash flow to cover it. This limits its ability to expand through acquisitions and puts it at risk of defaulting.
Still, revenue and earnings are forecast to grow through 2025, which is positive. Earnings per share (EPS) are expected to reach 56p and dividends are forecast to rise moderately to 23.6p per share in 2026.
The expected earnings growth means the current price-to-earnings (P/E) ratio of 21.5 could come down to 7.3. That suggests the current price could be significantly undervalued.
I plan to keep making regular contributions to British Land and other REITs as part of my passive income strategy in 2025.
