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UK stocks offer plenty of opportunities to generate healthy levels of passive income. Here are two examples.
1. Harbour Energy
The Harbour Energy (LSE:HBR) share price has come under pressure since the middle of 2022, when the previous government announced plans to introduce an energy profits levy (or windfall tax) on profit made from the North Sea.
To help mitigate the impact, the oil and gas producer bought the upstream assets of Wintershall Dea. The group now has operations in nine countries and faces a lower average tax rate than before.
Harbour’s current policy is to return $455m to shareholders each year. Its 2024 dividend of 26.19 cents (19.47p at current exchange rates) was 13.8% higher than in 2022. It’s forecasting free cash flow (FCF) of $900m in 2025, so there’s plenty of headroom.
However, like all energy producers, the group’s earnings are sensitive to oil and gas prices. The FCF estimate assumes a Brent crude price of $65 a barrel and a European gas price of $12/mscf (thousand standard cubic feet). A fall could lead to a cut in the dividend.
During the first quarter of 2025, the group’s production was split 40% liquids (oil) and 60% gas. Current prices are around $72 and $12 respectively. Therefore, at the moment, the payout appears secure. Of course, this could quickly change.
Other factors that should help earnings include a post-acquisition $5/boe (barrel of oil equivalent) fall in the cost of production and lower interest costs due to a reduction in debt.
Based on a current (20 June) share price of 210p, the stock’s yielding an impressive 9.27%. The average for the FTSE 250 is 3.46%.
2. Legal & General
Although the five-year share price performance of Legal & General (LSE:LGEN) has probably disappointed shareholders – it’s increased 15% compared to a 40% rise in the FTSE 100 – I’m sure its dividend hasn’t.
Impressively, the pension and savings group’s payout in 2024 of 21.36p was 21.6% higher than in 2020. And if it wasn’t for the pandemic – when the group maintained its dividend for one year – it would be able to claim a 15-year unbroken run of increases.
Looking ahead, the directors hope to grow it by 2% a year from 2025-2027. I think this is achievable if it’s able to win new pension business – it has a pipeline of £44bn of schemes that it’s looking to acquire – and a trend of customers moving into higher margin products continues.
But the group has huge investments (£505bn at 31 December 2024) in global equites, bonds and commercial property on its balance sheet. To meet its obligations to pensioners, these need to perform in line with expectations. This makes its earnings (and dividend) vulnerable to the same global uncertainty that affects most investors.
Also, it operates in an increasingly competitive marketplace.
Based on amounts paid over the past 12 months and a current share price of 254p, the stock’s yielding 8.41%. The average for the FTSE 100 is 3.49%.
Final thoughts
Although dividends cannot be guaranteed, I think both of these stocks are well placed to – as a bare minimum – maintain their generous payouts. That’s why I have them in my Stocks and Shares ISA. And for the same reason, income investors could consider including them in their own portfolios.
