Not everyone is chasing the biggest returns, some people just want to bolster their income – fortunately for them, this looks to be a record-breaking year for income investors.
The FTSE 100 (the 100 largest UK publicly listed companies) is expected to pay out a record £88.8bn in dividends in 2026, according to the latest report from investment platform AJ Bell.
Here, we take a look at how you can invest for an income and what to watch out for.
Please note: this article is for information purposes only and does not constitute financial or investment advice. Please refer to the particular T&Cs of an investment platform before committing to any financial products.
What types of investment pay an income?
While you can earn money from investments as they grow in value, you can also invest to get a regular income.
Many also look to property as an income-generating investment, though this will require much more preparation and likely ongoing work and costs.
- Stocks – Some companies give out a regular payment, known as a dividend, to investors in their stocks. Not all stocks will pay out a regular dividend, and not all dividends will last forever – they can be cut at any time.
- Bonds – You can buy bonds from companies or governments that pay regular interest over a fixed term. Bonds from the UK government are known as gilts.
- Funds and trusts – Funds and trusts can invest in a range of income-paying stocks and bonds. If you’re looking for an income, you’ll often find funds and trusts with words like ‘income’ or ‘dividend’ in their name. They will usually state how often they make payments, for example, quarterly. While funds and trusts can do the hard work of selecting investments for you, you’ll usually pay management fees.
If you decide to put your money into any of these types of investments, you’ll need to set up an account to buy them through an investment platform. You can read our reviews of the best investment platforms to find the right fit for you.
How to spot a good dividend
One figure to look out for is the dividend yield. This shows you the annual dividend as a percentage of the current share price.
For example, if a company’s shares are worth £100 and it pays a £2 annual dividend, the dividend yield is 2%.
A high dividend yield means you’ll get more for your money, but more isn’t always better.
The yield on a 10-year UK government bond (known as a gilt) is often used as a guide to the ‘risk-free rate’ because UK government bonds are considered one of the safest investments. It currently sits at 4.9%.
If a yield is more than double the ‘risk-free rate’, it might be a sign of a falling share price or an incoming cut.
- Find out more: how to invest for income.
How much will UK stocks pay in dividends in 2026?
Stocks in the FTSE 100 index have a reputation for paying out major dividends.
AJ Bell forecasts that FTSE 100 companies will pay a record £88.8bn in dividends in 2026, surpassing the previous record of £85.2bn set in 2018.
However, much of this is coming from a very concentrated number of companies. 53% of the total forecast pay-out is expected to come from just 10 companies.
The largest payments forecast are due from HSBC (£10.8bn), Shell (£6.5bn), and British American Tobacco (£5.3bn).
But these aren’t necessarily the companies paying out the most per investor, which is better indicated by the highest dividend yields.
The highest dividend yields forecast for the year ahead come from financial firms, with Investec (8.5%), Legal & General (8.1%) and Standard Life (7.3%) topping the list of the highest yields.
Risks to watch out for with an income-paying investment
Some companies with a less than stellar outlook will offer higher dividends to draw investors, but dividends can also be cut or cancelled at any time. Avoid investing just for the dividend if you think the company’s future isn’t looking so rosy.
If you can afford it, it might be better to work with an independent financial adviser to help you choose the best income-generating investments for you.
Investing can’t guarantee you an income. If you’re looking for a guaranteed income, you might be better off with a fixed-rate savings account, cash Isa, or annuity – though your money won’t have the same opportunity to beat inflation as if you were investing.
While investing could provide higher long-term returns than cash, the value of your investments can also fall, so you could get back less than you invest.
Do you have to pay tax on dividend income?
Income from investments is subject to dividend tax, and the amount you pay will depend on your income tax bracket.
Basic-rate payers pay 10.75% on the income they receive, while higher-rate payers pay 35.75% and additional-rate payers pay 39.35%.
You have a tax-free dividend allowance of £500, before you need to start paying dividend tax.
You can save some money on tax by investing in a stocks and shares Isa, which has an allowance of up to £20,000 each tax year.
- Find out more: dividend tax explained.
