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Investing in a portfolio of FTSE 100 stocks are a great way to target secondary income in retirement. That’s because they pay some of the best benefits in the world, and there’s more.
UK green chips are firmly back in fashion, and the index is posting its fifth-best year ever in 2025. So investors get to grow on top of the regular payouts that most of the UK’s biggest companies make to reward shareholders for their loyalty.
I can see another reason why dividend stocks should be considered right now. Little by little, interest rates are coming down. In fact, the Bank of England has cut the base rate six times since August 2024, to today’s level of 3.75%.
Dividends and growth
Some analysts think interest rates could fall as low as 3% this year, as inflation slows and the economy stagnates. If that happens, returns on risk-free asset classes like cash and bonds will continue to slide.
That won’t be a problem for equity stocks. In fact, lower interest rates can increase a company’s profits, allowing boards to distribute more money among investors. Many firms aim to increase dividends every year, providing shareholders with income that helps keep pace with inflation.
FTSE 100 insurance and asset manager Legal and General Group (LSE: LGEN) currently offers the highest yield of the entire index, at 8.2%. That’s almost double what most savings accounts pay today. Even better, the yield is expected to reach 8.48% by 2026.
Legal & General’s share price has trailed the FTSE 100 over the past year, however, growing by 13.8%. However, throw in that yield and the total return is 22%, which is well above cash. I also think its shares have scope to reach 2026.
Stocks like these are more volatile than cash. The capital is in danger. Investors should never buy stocks with an outlook of less than five years, but the real benefits come over 10, 20 or 30 years, as stock price growth and dividends have time to compound and grow. Short-term volatility is the price investors pay for higher long-term returns from stocks.
I handle Legal & General myself. It’s not perfect. Its earnings per share (EPS) fell three years in a row, which measured the share price. That picture is improving though. The board predicts that EPS will grow between 6% and 9% this year.
Sharing with the powerful
Legal & General operates in a highly competitive market. New growth areas such as corporate pension risk transfer offer significant potential, but competitors are chasing similar opportunities.
Much more depends on the broader market. The global crash will hit UK stocks across the board, including Legal & General, which has £1.2trn of assets under management.
That is why investors should aim to build a balanced portfolio of at least twelve stocks, so that if some are disappointed, others can compensate. Then hold for a long time.
There is no guarantee FTSE 100 it will repeat last year’s performance, but it has momentum and UK equities are attracting overseas interest from investors worried about the valuation of US tech stocks.
Personally, I always think it’s a good time to buy UK income shares. When investors start earning and reinvesting profits, their money should be compounded and grow into real wealth. This one day can be deducted as a second income when you retire.
