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Being full of market-leading companies has long made the UK stock exchange a wonderful source of passive income for risk-tolerant investors.
Here are three examples that I reckon dividend-focused Fools should ponder buying.
Passive income powerhouse
To be pedantic, National Grid (LSE: NG) is a monopoly provider of electricity and gas transmission in the UK rather than a market leader. This lack of competition, when combined with the fact that we always need access to power, has allowed the company to build up a solid reputation among those looking to generate a second income from their portfolios.
This isn’t to say that there haven’t been disappointments along the way. Earlier this month, the full-year dividend was reduced by 20% to 46.7p per share. While expected (the firm needs cash to upgrade its infrastructure over the next five years) this move has served to remind investors that no income stream is ever truly guaranteed.
On a more positive note, the company expects “strong operational performance” in FY26. Most importantly, the current yield stands at 4.3% and management has stated that future dividends will grow in line with inflation.
Recent woes aside, I think this remains one of the most resilient businesses in the UK market’s top tier.
Is the housing market poised to boom?
Lloyds (LSE: LLOY) is the biggest mortgage lender in the UK. This could prove beneficial to holders if the housing market really kicks back into gear after a few tricky years. The recent cut in interest rates to 4.25% is an encouraging development on this front and goes some way to explaining why the shares are now up over 40% year-to-date.
Then again, inflation climbed to a higher-than-expected 3.5% in April thanks to many household bills going up. This has prompted speculation that there will be no further drops in interest rates for the rest of 2025. Throw in any additional, unexpected wobbles in the UK economy and sentiment in the stock will likely be impacted.
Even so, it’s telling that Lloyds has been hiking its dividend at speed since the pandemic. That’s never a bad sign in my book. A yield of 4.5% also means that the value of investors’ money isn’t being eroded.
FTSE 250 cash machine
For those willing to travel a little further down the market, IG Group (LSE: IGG) might be worth a gander. Founded in 1974, the company was the pioneer of financial spread-betting. It’s led in this space ever since.
Right now, IG shares are down to yield 4.4% for FY26 (beginning in June). Analysts reckon this should be easily covered by anticipated profit.
Another thing I like about IG is that its balance sheet also boasts a huge amount of net cash. This suggests that the bi-annual payouts, while never nailed on, are very unlikely to be cut as things stand.
Of course, this line of work has long been an easy target for regulators. I don’t see that changing any time soon. While it may be top of the tree at the moment, the £4bn cap must also contend with competitors continually trying to lure away its clients.
Even so, a price-to-earnings (P/E) ratio of 11 still seems like a very reasonable price to pay.
