The stock market crash could provide buying opportunities for investors seeking to make a passive income. Many UK shares now trade at cheap prices. This could mean they offer high yields.
With many other mainstream assets now offering low returns due to falling interest rates, FTSE 100 and FTSE 250 dividend shares could be the best means of obtaining a high and growing income in the long run.
As such, now could be the right time to buy a diverse range of British stocks while investor sentiment is weak.
High yields after the stock market crash
Many UK shares haven’t yet recovered from the recent stock market crash. Risks such as Brexit and coronavirus are causing investor sentiment to remain weak towards a variety of sectors. As such, high yields are on offer across the FTSE 100 and FTSE 250. Many stocks currently offer passive income returns that are significantly greater than their historic averages.
In many cases, high-yielding shares have affordable dividends. For example, defensive stocks such as utility companies, tobacco businesses and other companies with solid financial performances continue to have relatively large dividend cover despite a weak economic outlook. Therefore, they could offer a resilient income return. Even if the prospects for many of their index peers deteriorate in the coming months.
Furthermore, investors seem to be pricing in the prospect of a second stock market crash over the medium term. This could mean there are margins of safety included in UK shares that may only be available temporarily. Taking advantage of them now could prove to be a sound move. And that’s due to the stock market’s long-term recovery prospects.
Making a passive income in 2020
Buying UK shares today for a passive income may be a sound move despite the threat of a second stock market crash. There are relatively few other options available to make a worthwhile income in 2020.
For example, high house prices mean that the yields on buy-to-let property may be relatively low. That’s especially the case after rising taxes are factored in. Meanwhile, low interest rates are set to remain in place over the coming years. This could mean that bonds and cash lack income appeal to all but those investors who have large sums of capital.
Therefore, now could be the right time to capitalise on low valuations and high yields among UK shares after the stock market crash. Of course, diversifying among a wide range of companies could be an important step for all investors to take. It reduces the impact of disappointing performance from one or more companies on your wider portfolio. This may lead to a more robust passive income that can grow over the coming years and improve your financial outlook.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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