Dividend stocks have long been a popular destination of capital for investors seeking to earn a passive income. And while higher interest rates have led to attractive opportunities within the bond market, rate cuts are slowly putting an end to that.

A quick glance at the NS&I website shows that British Saving Bonds now only offer around 3.5%. That’s almost half the 6% being offered only a few years ago. Yet in the stock market, there are still plenty of impressive yields on which to capitalise. And one sector that seems to have a lot on offer is energy.

Oil & gas opportunities

While fossil fuels aren’t particularly fashionable among environmentally concerned investors, oil & gas companies still play a vital role in the global energy landscape. And even as the world slowly transitions towards alternatives like nuclear and renewable energy, oil & gas remain vital to this process.

In fact, natural gas is currently considered to be one of the most effective stopgap solutions as nuclear power plants are built and the hydrogen technology ‘revolution’ develops.

Right now, the FTSE 350 is home to just seven oil & gas producers. What’s more, some of these companies offer jaw-droppingly high dividend yields. So much so that the average across this basket of stock is 9.3% compared to the 3% to 4% typically offered by the stock market.

Company	Market Cap	Dividend Yield
Shell	£137.9bn	4.7%
BP (LSE:BP.)	£55.7bn	7.0%
Harbour Energy	£2.3bn	12.6%
Ithaca Energy	£2.0bn	14.1%
Energean	£1.4bn	12.2%
Diversified Energy Company	£660m	11.0%
Hunting	£420m	3.5%

Why so high?

A quick glance at the list shows an interesting pattern. With the exception of Hunting, all the small-sized FTSE oil & gas producers offer remarkably high dividend yields compared to Shell and BP. This isn’t entirely surprising, given that these smaller players also come paired with a lot more risk.

• Harbour Energy and Ithaca Energy are tackling political and regulatory uncertainty surrounding future oil & gas developments in the North Sea.
• Energean’s operations are right next door to the ongoing conflict in Gaza.
• Diversified Energy Company is facing a regulatory probe over alleged mismanagement of retired wells.

Needless to say, that’s a lot of risks, making the larger industry players more attractive to risk-averse investors. The payout may not be as high. However, with deeper pockets and a more diversified portfolio of assets, Shell and BP are likely to fare better during a cyclical downturn while still offering a higher dividend yield than NS&I bonds right now.

Large-cap isn’t risk-free

Being a bigger enterprise has its advantages, but it’s not a guarantee of safety. Oil & gas demand is steadily rising. However, with so many players in this industry worldwide, the supply side of the equation is constantly in flux. That can cause oil & gas prices to move in the wrong direction, putting pressure on margins and earnings that fund dividends.

BP, in particular, has the added uncertainty of committing to a U-turn on its aggressive investments into renewables, extending its transition timeline and expanding its oil & gas efforts in the short term. In fact, that’s likely why the shares offer a higher yield at 7%.

Nevertheless, when combined with other dividend stocks in a diversified income portfolio, these energy stocks could be a good source of income. That’s why I think they deserve a closer look today.

When it comes to dividend shares offering high-yield passive income, the UK stock market truly excels. Investors are almost spoilt for choice, with a veritable feast of opportunities to run the rule over.

Here, I’ll show how a simple ISA portfolio of five FTSE 100 stocks could lead to over £12k a year in tax-free dividends.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

What is high-yield anyway?

Earlier in April, the annual ISA allowance kicked in, enabling people to invest up to £20k without worrying about tax liabilities. This means that someone could invest £4,000 equally into five shares.

There’s no universally agreed-upon definition of what ‘high-yield’ means. But the average dividend yield of the FTSE 100 index is around 3.6% today. Therefore, a share sporting a 6% yield or more would definitely count as high-yield, in my eyes.

Also, government bond yields and savings rates are currently below 5%. So a dividend portfolio yielding above 6% would be a good target.

Mini portfolio

According to my data provider, 15 Footsie stocks offer 6%+ yields right now. Here are five of them that could be considered for a mini portfolio.

	Sector	Dividend yield
M&G	Investment manager	11.1%
Legal & General	Life insurance	9.3%
British American Tobacco	Tobacco	7.6%
BP	Oil	7.3%
HSBC (LSE: HSBA)	Banking	6.9%

The average from this portfolio would be a very juicy 8.4%. I should note that this is based on the trailing — or backwards-looking — dividend yields. Moving forward, they could be higher or lower than this, depending on whether the firms raise or cut their payouts.

Asia-focused banking goliath

Ideally of course, investors want profits and dividends to head higher. But this isn’t guaranteed, as each company has its own risks and challenges.

For example, three of those companies (M&G, Legal & General and HSBC) are from the financial sector. Right now, the global financial system’s facing a lot of uncertainty due to President Trump’s tariffs and the potential for an economic slowdown (or worse).

That could put pressure on earnings, especially for Asia-focused HSBC. It has major operations in and around China, which is facing significant trade pressures from the eye-watering US tariffs. Reduced trade activity and an economic downturn across Asia are clear risks to HSBC’s growth.

This is reflected in the share price, which has dipped 15% since the start of April.

Despite these concerns, I still rate the bank’s dividend prospects. The forecast payout is covered twice over by expected earnings, which should provide a decent buffer if profits come in light. Meanwhile, the balance sheet remains in tip-top shape.

Longer term, I expect HSBC’s pivot to Asia to pay off. According to McKinsey, it will be home to two-thirds of the global middle class by 2030, with 700m new members added between now and then.

Therefore, the region should provide ample opportunities for the firm to increase its earnings and dividends over the coming years.

Compounding returns

A £20,000 ISA yielding 8.4% would throw off £1,680 in passive income each year. But if an investor let that build, the total amount would be around £150,232 after 25 years. The tax-free annual income would then be £12,620, or the equivalent of just over a grand a month.

These calculations assume stable share prices and yields. In reality though, an investor would hope for appreciation in both, as well as a significantly higher final amount by investing more cash regularly along the way.

US stocks are going through quite a rough patch at the moment but that might be music to the ears of Warren Buffett.

The billionaire investor had seemingly predicted that the stock market was heading towards a price correction for some time now. After all, President Trump has frequently talked about the prospect of tariffs during and after his electoral campaign. And pairing this with rising stock valuations, there were some early warning signs of volatility ahead.

Looking back, this could explain why, in 2024, Buffett was actually a net seller of stocks, taking $134bn worth of equities out of Berkshire Hathaway‘s investment portfolio. And as a result, Berkshire now has a record $334bn pile of cash sitting on the sidelines.

Being cash-rich during a time of crashing prices is a powerful advantage. After all, it provides ample flexibility to buy top-notch stocks at a discount. And it’s a tactic that Buffett has been using for decades. In fact, going all the way back to 1986, his shareholder letter stated: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.

Using the Buffett method

Capitalising on stock market volatility doesn’t mean just buying up shares in businesses that have been beaten to a pulp. Buffett’s notorious for investing only in high-quality companies when the valuation’s reasonable and attractive. That’s something I also prefer to do for my own portfolio.

Determining which companies are top-notch is easier said than done. But investors can cheat a bit by simply looking at the stocks already in the Berkshire Hathaway portfolio. And right now, that list includes Amazon.com (NASDAQ:AMZN).

Buffett first invested in the e-commerce giant back in 2019. And across all his transactions, the average buying price per share sits close to $84.22. Even after the stock’s recent volatility, Buffett has still more than doubled his investment. But with the stock down almost a quarter since the start of 2025, is this a new buying opportunity?

The bull and bear case for Amazon

In terms of revenue generation, the bulk of Amazon’s top line comes from its e-commerce platform. However, when digging into the profits, I see that the cloud-focused side of the business is actually driving growth.

Amazon Web Services (AWS) account for roughly half of the group’s operating income despite only generating 15% of the revenue. And with artificial intelligence (AI) and cloud spending expected to surge over the next decade, the opportunities for this business continue to be enormous.

However, like every business, there are risks to consider. A tariff-induced trade war could trigger recessions that hamper consumer spending. That’s bad news for both sides of the business since economic activity would suffer, leading to less demand for its cloud services and lower order volumes in its marketplace.

Since Buffett’s focused on the long term, the short-term disruptions of tariffs may not be too concerning. However, it’s worth pointing out that Amazon shares still trade at a valuation Buffett may consider to be lofty, at 25 times forward earnings.

Is this a fair price? Time will tell. However, given the volatility in the markets right now, taking a dollar-cost averaging approach may be prudent for investors considering buying Amazon shares in the current climate.

The FTSE 100 is stacked with cheap quality shares following the recent market sell-off. High street bank Lloyds (LSE:LLOY) is one blue chip whose shares offer exceptional all-round value, at least on paper.

At 66.1p per share, Lloyds’ share price commands a price-to-earnings (P/E) ratio of 8.7 times for 2025. Meanwhile, its P/E-to-growth (PEG) ratio is, at 0.5, some distance below the value watermark of 1.

Finally, its forward dividend yield is 5.4%, suggesting the possibility of above-average passive income streams.

Yet I won’t touch Lloyds with bargepole right now. Profits could jump if the UK economy rebounds, and the firm leverages its winning brand to grow revenues. But it also faces a serious of significant challenges today and in the long term, two of which I’ll describe below.

1. House of cards?

The mortgage market is a key profits driver for Lloyds. Its market share towers above the competition, and recent housing industry data suggests homebuyer demand remains pretty buoyant.

Yet the company’s dominance in the home loans segment is under threat as lenders kick off a new ‘mortgage rate war.’ Lloyds — whose margins are already under substantial pressure — may have to keep slicing loan rates if it wishes to keep attracting property buyers and existing homeowners.

This week Barclays became the latest lender to slash rates on some fixed-term products to 4%. This first move by a fellow major player has led to speculation of a spate of similar action from other loan providers.

The danger to Lloyds could be even more significant and long lasting, too, if (as expected) the challenger banks turn their attention here. Changes to UK capital rules last autumn give the smaller players added scope to launch an attack on the mortgage sector.

2. Car trouble

The greatest threat to Lloyds’ profits (and its share price) in 2025 could be the issuing of huge financial penalties from the Financial Conduct Authority (FCA).

Misconduct fines can be a regular annoyance for investors in bank shares. But the ones facing Lloyds — on this occasion related to the mis-selling of motor loans — could be truly staggering. Some analysts have put the total cost at above £40bn, bringing back painful memories of the PPI scandal.

As the sector’s biggest lender, Lloyds would likely be on the hook for the majority of any final bill. So far it’s set aside £1.2bn to cover any future costs, compared with £195m and £165m at Santander and Close Brothers, respectively.

The Supreme Court is currently deciding whether discretionary commissions in car loans are legal, following an appeal by lenders last year to a previous case. The decision could cause an earthquake for banks’ profits.

Lloyds shares might be cheap at current prices. But I feel this is a fair reflection of the huge and numerous risks it poses to investors, so I’d rather go shopping for other cheap stocks today.

Investing in a Self-Invested Personal Pension (SIPP) is a terrific way to build medium-to-long-term wealth. Even in the last five years, with all the volatility investors have endured, the stock market has delivered some fairly robust returns. So with that in mind, let’s take a look at how a £5,000 portfolio has performed since April 2020.

Transformative gains

The level of returns enjoyed by investors ultimately depends on where the money has been invested over the last five years. Here in the UK, large-cap stocks have been outpacing small- and mid-caps by a significant margin when looking at the FTSE 100 and FTSE 250. Meanwhile, across the pond, the S&P 500 and Nasdaq 100 are reaping the rewards of stronger economic growth.

Index	5-Year Total Return	Annualised Return	Portfolio Value
FTSE 100	55.6%	9.2%	£7,780
FTSE 250	27.6%	5.0%	£6,380
S&P 500	96.4%	14.5%	£9,820
Nasdaq 100	119.8%	17.1%	£10,990

Clearly, the US tech sector’s been the star of the show. But what’s interesting is that, when excluding the FTSE 250, each index notably outperformed its historical average return. For reference, the FTSE 100 typically generates an 8% annual gain, while the S&P 500 and Nasdaq 100 stand at 10% and 13% respectively.

There are a lot of different factors at work here. However, one of the biggest is the fact that five years ago today, the stock market had just gone through the 2020 Covid Crash.

This goes to show that buying proven high-quality businesses at a time of fear, uncertainty, and doubt can lead to market-beating returns. So could investing another £5,000 today achieve similar market-beating returns over the next five years?

Looking for opportunities

It’s impossible to know for certain what’s going to happen over the next five years. The tariff situation will undoubtedly cause chaos in the short term. However, I remain optimistic for the long run as quality companies adapt to the new landscape.

As such, looking at proven industry leaders with healthy balance sheets might be a prudent move to consider right now. And one business I’ve had my eye on for a while is Nvidia (NASDAQ:NVDA).

The chip designer has already seen almost a third of its market-cap wiped out since the start of 2025. However, as a result, the stock’s finally trading at a far more reasonable valuation of just 21 times forward earnings. And given semiconductors have been excluded from the recent tariffs, is Nvidia a no-brainer buy?

Well, not quite. While semiconductors have indeed been given an exemption, a 25% tariff has been put on steel and aluminium. Nvidia relies significantly on these two commodities for its data centre products.

In terms of impact, Nvidia’s margins are likely going to take a hit since the AI accelerator chip landscape is becoming increasingly competitive. And subsequently, earnings could fail to meet analyst expectations, pushing the forward P/E higher than it seems right now.

However, with $43bn of cash on its balance sheet right now, Nvidia appears to have more than enough financial flexibility to weather this storm. That’s why I think it might be a great long-term addition to my SIPP while its shares tumble to a discounted price.

Today investors can pick up a wide range of investment trusts ‘on the cheap.’ Recent stock market volatility means many now trade at a large discount to their net asset values (NAVs), and rising dividend yield makes them attractive candidates for those seeking dividend stocks.

Here is one of my favourites, and especially at the moment as economic uncertainty grows.

Trust the process

Real estate investment trusts (REITs) are designed in a way that can make them ideal candidates for passive income. In exchange for tax reductions, these investment vehicles must pay at least 90% of yearly rental profits out in dividends.

This doesn’t guarantee that shareholders will enjoy a large and/or growing second income, as cash rewards are still tied to earnings. But it does mean the business has less flexibility to decide to limit, reduce, or eliminate dividends than other shares.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

On top of this, some property trusts provide added peace of mind to investors by operating in defensive sectors. This is why I think Social Housing REIT (LSE:SOHO) is worth serious consideration right now.

Stable sector

As a provider of residential property — and more specifically for adults with care and support needs — rental income and occupancy rates tend to be more stable than those of trusts operating in more cyclical sectors.

In addition, the rents it receives are effectively funded by local authorities, who pay housing benefit to approved providers who lease its properties. Changes to government funding could impact this favourable funding model. But I’m optimistic that this is unlikely given the huge savings that trusts like this provide the taxpayer.

According to Social Housing REIT,

Residents living in specialised Supported Housing cost the government about £200 less per week than being in a residential care home and nearly £2,000 less per week than remaining in in-patient care.

As a consequence, the trust estimates that its own portfolio saves the government around £71.6m each year.

With a large portfolio of properties, too — it has around 3,400 homes on its books across 500 supported housing properties — it’s well placed at group level to absorb any problems that might arise.

8.9% dividend yield

I don’t think these qualities are reflected in the cheapness of Social Housing REIT’s shares.

At 61.9p per share, the trust also trades at an 45.8% discount to its estimated NAV per share of 114.1p.

The investment trust also offers excellent value from a passive income perspective. Its forward dividend yield of 8.9% is one of the highest across the REIT asset class. To put that into context, the FTSE 100 average sits way back at 3.9%.

Social Housing REIT’s share price has been negatively impacted by higher interest rates in more recent years. This has depressed the value of its assets and driven up borrowing costs.

While it remains sensitive to future rate movements, I believe that — on balance — this investment trust is an attractive dividend payer to consider today.

Small-cap stocks listed on the London Stock Exchange often get overlooked by investors searching for income. Perhaps that’s understandable, as established blue-chip names like Lloyds and Vodafone normally hog the limelight.

Moreover, there’s often an assumption that smaller enterprises don’t have the financial clout to support rising payouts. While that may broadly be true and payouts aren’t guaranteed, there are some quality small-caps that offer potentially attractive income streams.

Here, I’ll highlight two of them that are worth considering.

Surging bullion prices

The first is Ramsdens (LSE: RFX), which has a market-cap of £76m. The firm operates 169 stores and specialises in pawnbroking loans, jewellery retail, foreign currency exchange, and the purchase of precious metals. 

The stock’s almost doubled in five years, and jumped nearly 10% on 8 April. This came after the firm raised its profit outlook for the full year, driven by the surging gold price.

Pre-tax profit’s expected to be at least £13m, higher than the £12m previously expected by analysts. In its last fiscal year (which ended in September), Ramsdens’ pre-tax profit was £11.4m on revenue of £95.6m.

Gross profit in its precious metals segment increased 50% year on year in H1. This was driven by the rising gold price, coupled with a 5% increase in the weight of gold purchased. To take advantage of this trend, the firm launched a dedicated gold-buying website last month. 

Meanwhile, gross profit at its pawnbroking and jewellery retail businesses increased by 10% and 15%, respectively. Foreign currency gross profit was flat though, partly because the Easter holiday period is later this year. But Ramsdens says its multi-currency card is performing well and an international money transfer service is now live. 

Risks here include a sharp decline in gold prices or a spike in inflation. While the latter might boost its pawnbroking and precious metals businesses, less disposable income could also impact demand for jewellery and holidays (currency exchange services).

Rising profits obviously bode well for dividends though. The dividend yield for the current year is a respectable 5.5%, with the payout comfortably covered 2.3 times by prospective earnings.

Finally, the valuation looks attractive. The forward price-to-earnings ratio is just 8, which isn’t high for a consistently profitable company with a strong balance sheet.

Building income through bricks

Next is Michelmersh Brick (LSE:MBH), a penny stock with an £89m market-cap. The company makes over 125m clay bricks and pavers each year. It also owns a number of premium brick brands, which tend to have higher margins.

At 95p, the share price is down 35% over the past four years, largely due to higher interest rates putting pressure on UK housebuilding. The risk here is that this weakness persists longer than expected.

Taking a longer view however, the brick maker’s prospects appear bright. The government had pledged to build 1.3m homes by 2029 to ease the chronic housing shortage, while the Office for National Statistics projects that net migration will average 340,000 a year from 2028.

These are very supportive trends for housebuilding (and therefore bricks). Michelmersh says that positive momentum in its order intake from 2024 continued into Q1 of this year, leaving it well positioned for a market recovery.

The well-supported forward dividend yield is around 5%.

Aston Martin Lagonda (LSE:AML) shares have continued to make headlines over the past two years. Investors were sold a fairly smooth path to profitability, but that simply hasn’t been the case.

In 2024, the company reported a pretax loss of £289.1m, widening from £239.8m in 2023. This was reported alongside a decline in revenue by 3% to £1.58bn. It was a painful year for the iconic carmaker, as wholesale volumes also fell 9%, reflecting supply chain disruptions and weaker demand in key markets like China.

Despite these setbacks, Aston Martin managed to achieve a rare positive cash flow in the final quarter of 2024. New product launches and improved sales of high-margin models drove this achievement.

Failing to impress the market

The company’s share price has mirrored its financial struggles, plummeting by over 96% since its flotation in 2018. As of April 2025, shares are trading near their 52-week low of 56p, down significantly from their year-peak of 172.8p in April 2024.

Rising debt levels, which ballooned to £1.16bn at the end of 2024, have compounded Aston Martin’s challenges. To address these financial woes, the company has cut jobs and scaled back production plans. Additionally, it has received continued financial backing from Lawrence Stroll’s Yew Tree Consortium, which recently increased its stake to 33% through a £52.5m investment.

Another promise

In 2023, Aston Martin Lagonda set ambitious financial targets as part of its turnaround strategy. Executive Chair Lawrence Stroll planned to achieve £2bn in revenue and £500m in adjusted EBITDA (earnings before interest, taxation, dividends, and amortisation) by 2024/25.

Initially, these goals were tied to selling 10,000 vehicles annually. However, CFO Doug Lafferty later expressed confidence that the company could meet these objectives with just 8,000 units per year.

However, this just hasn’t happened. The business is still making promising though. New CEO Adrian Hallmark has outlined plans for a “materially improved” financial performance in 2025, with expectations of positive adjusted EBITDA and free cash flow in the second half of the year. The launch of the Valhalla, Aston Martin’s first mid-engine plug-in hybrid, is expected to play a crucial role in this turnaround.

Now, the group plans to achieve revenue of £2.5bn and adjusted EBIT of £400m by 2027/28. However, given its historic struggles, it’s unclear whether it can acheive these targets.

High risk, high reward

I had previously been an investor in Aston Martin, but it’s not for me anymore. Aston Martin’s journey remains fraught with risks. What’s more, the company ships around 2,000 vehicles to the Americas on average. Trump’s tariffs put these numbers in peril. Finally, while management is taking steps to stabilise operations and improve profitability, the company’s long history of financial troubles and increasing reliance on external funding are huge concerns. I do think it’ll survive the year, but it needs a turnaround to guarantee its future.

With a small pot of savings set aside, there are several avenues to explore passive income opportunities. One of the most effortless is investing in dividend-paying companies. It’s a hands-off approach that lets time do the heavy lifting.

While it’s not a foolproof formula, many legendary investors have successfully tapped into this method. The key lies in following a few smart strategies to help tip the odds in your favour.

Cutting costs

Taxes can take a bite out of your investment profits, so finding ways to reduce that impact is a smart starting point. For UK investors, one of the most effective tools is the Stocks and Shares ISA.

This account lets you invest up to £20,000 a year without paying tax on any gains — a powerful advantage when building long-term wealth. Best of all, opening one is straightforward, with most high street banks and a range of online platforms offering easy access.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The strategy

A solid passive income portfolio often strikes a balance between growth stocks and dividend-paying shares. Growth stocks offer the chance for higher capital gains, while dividends deliver a more consistent income stream — each brings something valuable to the table.

And here’s where the magic happens: reinvesting those dividends can spark the power of compounding, steadily accelerating returns over time.

Smart investors tend to spread their investments across different sectors and global markets, helping to cushion against industry slumps or regional downturns. Many focus on growth stocks to begin with, often achieving between 7% and 8% returns. Even a modest £5,000 investment could snowball into around £30,000 over 20 years. 

Adding just £200 a month along the way, and the pot could swell to £166,000 in that time. Shifting that into a portfolio with an average 7% yield would return yearly income of roughly £12,000.

The sooner one starts the better — imagine what it could deliver after 30 years?

What to look for

When building a portfolio for passive income, it’s important to consider where a company may be in 10 or 20 years. Will there still be demand for its products or services? Does it have a long history or reliable management? Is it in an industry with a sustainable future?

Consider British American Tobacco (LSE: BATS), a company that’s built a reputation for consistently delivering reliable and generous dividends. Even during challenging economic periods, it maintains a strong commitment to rewarding shareholders.

It has a consistently high yield, which, over the past 12 months, has fluctuated between 7% and 10.4%. Plus, its share price is up 35% in the past year, which is unusually high growth for a dividend-focused stock.

But its earnings have been volatile lately, with a £15.8bn loss in 2023 offset by a £2.73bn gain in 2024. It also faces significant risks from regulatory and legal challenges to smoking, most recently a £6.2bn charge in Canada. These challenges mean the company has an uncertain future. 

For this reason, it’s an example of a company that isn’t ideal for a long-term investment strategy. For that goal, it may be wiser to consider more sustainable dividend-paying companies like Aviva, HSBC, or National Grid.

There are lots of different ways to try and earn passive income, some more passive and income-generating than others.

The approach I use is to buy shares in proven blue-chip companies that pay dividends. With the stock market experiencing a lot of turbulence over the past couple of weeks, buying such shares now could prove more lucrative than just a short while ago.

With a spare £9,000, someone could use this approach to target a monthly passive income of £490 on average.

Here’s how!

Share price and yield are connected

How much passive income a share earns depends on two factors – the size of the dividend per share and what someone pays for that share.

For example, if a share pays a 5p dividend annually and an investor buys it for £1, the yield is 5%. But if that price halves and the investor buys more shares, he will earn a 10% yield for those shares even though the dividend per share is the same.

So, when the stock market pushes share prices down – as happened for many shares at some point this week – it can offer the opportunity of earning a higher yield.

Look out for the risks, not just the rewards

That presumes the dividend is maintained, which is never guaranteed. A tumbling stock market can reflect City nervousness about how businesses are set to perform. If they do badly, they may cut or even cancel their dividend.

To try and manage that risk, an investor ought to diversify their portfolio. And £9,000 is ample to do that.

It is also important to focus on buying into quality companies at an attractive share price and only then consider the yield, rather than just investing in high-yield shares without properly understanding them.

One share to consider

For example, asset manager M&G offers a 10.9% yield. But that alone is not why I think investors should consider it.

While M&G aims to maintain or grow its dividend per share each year, it may not. It has been battling with investors pulling more money out of its core business than they put in. A nervous stock market could exacerbate that trend, hurting revenues and profits.

However, I think it has some helpful tools in its arsenal.

It operates in a large market with resilient customer demand and has a customer base in the millions. It has a strong brand and a business model that has proven excellent at generating surplus cash, the stuff of which dividends are made.

Taking the long-term approach

My example presumes a lower average yield than M&G’s 8.5%.

That 8.5% is still well over double the FTSE 100 average, but I think it is achievable in the current market, where some blue-chip shares have tumbled in price. Indeed, the M&G share price is almost a fifth cheaper than at its high point last month.

Reinvesting dividends (known as compounding) can boost passive income streams for the long-term investor. Compounding £9k at 8.5% annually for 25 years, for example, should produce £490 of dividends per month.

A shorter timeframe could still work, although the target income would be lower.

Either way, a useful first step would be identifying a suitable share-dealing account or Stocks and Shares ISA through which to invest the £9k.