10 shares to give you a £10,000 annual income in 2026
Last year was one to remember for dividend hunters and followers of this column, generating more income than expected and a record capital gain. Lee Wild explains how it happened.
29th January 2026 11:56
by Lee Wild from interactive investor
It seems difficult to believe that so much was packed into 2025. Events that might otherwise have condemned global financial markets to a miserable time after back-to-back winning years, turned out to be a trigger for a third consecutive prosperous 12-month period for investors.
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US President Donald Trump continued to have an outsized impact on stock performance. His radical Liberation Day tariffs caused one of the biggest stock market corrections in decades. However, some serious backpedalling on the scale of import duties gave birth to the amusingly named TACO trade, or Trump Always Chickens Out.
Equity markets recovered almost as quickly as they had fallen, and every major global stock index ended 2025 ahead. For UK investors, it was thrilling to see the FTSE 100 register a 21.5% gain, its biggest annual increase since 2009 and better than anything Wall Street could muster.
Falling interest rates have played a significant role in the spectacular rebound and UK stock market revival, as inflation washed through the system. Investors have also been excited by major themes such as artificial intelligence (AI) on which tech giants have been spending hundreds of billions of dollars. Now the pressure is on to make it work, and big profits are needed to justify spending and sky-high valuations.
New themes such as quantum computing grabbed headlines, although momentum has been lost more recently. It was the same for crypto, where bitcoin raced to a new high at $126,000, dragging related assets with it, before a swift pullback. Enthusiasm for precious metals amid geopolitical uncertainty has seen prices for gold and silver regularly make record highs. And there seems no obvious end to the mining sector boom.
Trump proved again that he has the power to move markets in either direction, when he gave a massive boost to the global defence sector. Bullying other countries into spending more on their militaries propelled UK operators such as BAE Systems (LSE:BA.) and Rolls-Royce Holdings (LSE:RR.) to record highs. And the ongoing precious metals rally reflects investor fears about the president’s unique approach to domestic and foreign policy. Both the metals and defence sectors are key reasons why the FTSE 100 just broke above the psychologically important 10,000 level.
And geopolitics remain a major talking point in 2026. Already this year we’ve had the seizing of Venezuela’s leader by American forces and the threat of repercussions for European countries opposing his annexation of Greenland. It’ll be interesting to see how the land lies when Trump faces mid-term elections in November. Before then, we’ve got any number of potential flashpoints and concerns to navigate. It’ll be another interesting year for sure.
Income portfolio performance in 2025
A year ago, I expected the 10 stocks in this income portfolio to generate £10,338. I like to go for a little bit more than the round £10,000 as a kind of insurance policy should anything go wrong with one or more of the choices. I needn’t have worried. I ended up with £10,680, a chunk of which is attributed to an unexpected special dividend from Sainsbury (J) (LSE:SBRY).
Apart from a small shortfall from Rio Tinto Ordinary Shares (LSE:RIO), other constituents delivered pretty much the income I expected. As well as the £1,452 from Sainsbury’s, the portfolio banked £1,483 from my favourite income play M&G Ordinary Shares (LSE:MNG). But the biggest income generator in 2025 was Legal & General Group (LSE:LGEN) where the 9.2% yield I locked in a year ago dropped £1,653 into the coffers.
Targeting a 6.8% yield, the portfolio delivered 7%. But there was a fantastic capital return this time, too. In fact, it was the biggest profit generated by any of my equity income portfolios. By the end of the 12 months, the £152,000 it cost to buy the 10 stocks had turned into £189,963. Both HSBC Holdings (LSE:HSBA) and M&G were up almost 50% and GSK (LSE:GSK), Rio Tinto and British American Tobacco (LSE:BATS) all rose 30% or more. Only Taylor Wimpey (LSE:TW.) fell, dropping 9%, although the income was welcome. Combined, the income and 25% capital gain generated by the entire portfolio gave a total return of 32%.
As always at this point, I issue a reminder that investors don’t typically revamp an entire portfolio at the beginning of a calendar year. The reason I make changes to this income portfolio is to ensure the exercise remains relevant whether you’re an existing investor or coming to the portfolio for the first time. This year there are four changes.
The shares that stay in 2026
Rising stock markets means it has cost a bit more to put together this year’s portfolio. To achieve the targeted £10,000 of annual income, I’ve had to spend £168,000, the same as in 2024, but £16,000 more than in 2025. The prospective yield is 6%.
With share prices significantly higher than they were this time last year, there are fewer eye-catching yields out there, especially in the blue-chip index. However, I’ve been able to stick with a few of the same high yielders in 2026 and some of last year’s other stocks for diversification.
I’m remaining faithful to the pair of star income plays of 2025 – L&G and M&G – both yielding well over 9% and between them generating over £3,000 of income. This time they yield 8.4% and 6.9% respectively, and their consistency over the years would be foolish to reject this time.
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While I don’t expect Sainsbury’s to return anything like the 9.7% it generated last year – it’ll likely be about half that – it remains the best income option in the grocery sector. It’s also working hard on growing market share, battling the discounters such as Aldi and Lidl while offering premium alternatives to Waitrose and Marks & Spencer Group (LSE:MKS).
In the blue-chip oil sector, it’s BP (LSE:BP.) that keeps its spot in this income portfolio. At around 5.5%, it yields about 160 basis points more than Shell (LSE:SHEL) and, while it’s slightly more expensive, it outperformed its rival too in terms of share price performance. There’s seems little reason to switch sides.
Utilities are rarely exciting, which can be great for an income portfolio like this. However, last year National Grid (LSE:NG.) generated a dividend yield of 4.8% for us plus a 21% capital return. And despite a more modest 3.9% predicted yield in 2026, I’m keeping this diversifier for its defensive appeal, inflation-linked dividend and attractive forecast earnings growth.
I’ve given this final stock a lot of thought, and the decision to keep it was not an easy one. I want a housebuilder in the portfolio, and the sector still screens as cheap, trading on 0.8x price to book, according to Morgan Stanley. Taylor Wimpey might not be the analysts’ favourite, perhaps exposed more than others to slower house price growth, but it has an eye-catching 8.3% dividend yield and is similarly valued to sector peers. That’s impossible to ignore.
Heading for the exit
British American Tobacco yielded 7.5% in dividends last year plus a 32% capital return, outperforming sector peer Imperial Brands (LSE:IMB). But this year may be harder, with weaker cigarette fundamentals and growth in so-called New Category sales. I’m looking for better value and a more compelling investment case.
I’m grateful to GSK for three years of strong dividend income, including last year’s 4.7% yield and 30% share price gain. But the shares now trade at the top of their 13-year range of roughly 1,300p to 1,800p, and a forecast dividend yield of 3.5% doesn’t cut it. Time to let another stock have a go.
HSBC was the second-biggest riser in the 2025 portfolio with a 48% rally, but it also delivered the 6% dividend yield I’d picked it for. Of course, I still want to own a bank stock here, but a sector-wide rally has made it less attractive for income seekers, yielding a more modest 4%.
Rio Tinto is a fantastic company, and it has provided valuable dividend income over the years. However, the shares are up 46% in the past six months at a record high, and the yield has dropped to almost 4% from nearly 6% in 2025. A potential mega-merger with Glencore (LSE:GLEN) also carries with it risk, so I’m going without a miner in the portfolio this time.
New holdings for 2026
Despite a 56% surge in the past 12 months, NatWest Group (LSE:NWG) is the cheapest UK bank and yields 5%, much more than its high street rivals. Yes, it is a little more sensitive to interest rates, but it’s both a fitting replacement for HSBC and gives us exposure to a sector which should benefit from an improving UK economy.
Land Securities Group (LSE:LAND) makes its debut in this income portfolio series, which tells you all you need to know about the parlous state of the property sector in recent years. However, the ship has steadied and LandSec offers one of the best yields in the sector at around 6.4% plus an attractive valuation.
Pennon Group (LSE:PNN) is the second utility in this year’s portfolio. The water company had underperformed peers in recent years but has staged a recovery, now offering a sector-leading 6% yield. As utilities are minded to, the company set out its five-year dividend policy to 2030 which will see the payout grow in line with the Consumer Price Index including Owner Occupiers' Housing Costs (CPIH).
My rationale for ejecting BATS this year was to find “better value and a more compelling investment case”. There’s not much choice in the UK tobacco sector, but Imperial Brands and its 5.5% prospective dividend yield is a worthy replacement. The valuation is undemanding - it’s much cheaper than BATS - and the view in the City is that earnings visibility and moderate leverage should guarantee superior capital returns.
Company | Share price 29 Jan 2026 (p) | Sum invested (£) | Percentage of the portfolio | Prospective dividend yield (%) | Expected annual income (£) |
3,025.0 | 20,000 | 11.9 | 5.5 | 1,108 | |
547.5 | 20,000 | 11.9 | 6.0 | 1,191 | |
1,222.0 | 20,000 | 11.9 | 3.9 | 786 | |
264.0 | 20,000 | 11.9 | 8.4 | 1,683 | |
310.0 | 18,000 | 10.7 | 6.9 | 1,238 | |
649.0 | 18,000 | 10.7 | 6.4 | 1,150 | |
315.0 | 15,000 | 8.9 | 4.5 | 676 | |
463.8 | 13,000 | 7.7 | 5.5 | 710 | |
655.0 | 12,000 | 7.1 | 5.0 | 605 | |
108.0 | 12,000 | 7.1 | 8.3 | 1,000 | |
Total | 168,000 | 100 | 6.0 | 10,147 |
Source: ShareScope, analyst estimates. All figures as at 29 January 2026.
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