What’s the maximum amount a £20k FTSE income portfolio could make in a year?

The hunt for passive income from FTSE stocks is an ongoing process. Given that a stock’s dividend yield constantly changes, an investor needs to always be on the lookout for companies that could be worthy of inclusion. When considering how to maximise a portfolio’s yield right now, here’s how I think investors could go about things.

Shooting for the stars

To figure out how much a £20k portfolio could make, I’m going to filter just for FTSE 100 and FTSE 250 stocks. Granted, smaller companies could have an exceptionally high yield. Yet penny stocks and other similar firms carry a high risk. They might not be suitable or even available for some investors to purchase. Therefore, focusing on the companies that are easily traded makes it a fairly easy experiment to conduct.

If the investor purely wanted to maximise income for the next year, the easiest option would be to consider putting all the money in the SDCL Efficiency Income Trust (LSE:SEIT). With a current dividend yield of 14.15%, it’s the most lucrative income option in the pool. In theory, this could generate £2,830 over the coming year in dividends.

However, this isn’t the strategy I prefer. To begin with, the stock’s down 35.1% over the past year. The sector’s faced broader investor scepticism, especially around renewable and energy-efficiency trusts, exacerbated by macroeconomic worries and volatile commodity prices.

Interestingly, the net asset value (NAV) of the trust hasn’t really moved that much. So the fall in the share price reflects broader negative sentiment. In normal circumstances it should move in tandem with the NAV.

Regardless of the exact reasoning, the large drop would have wiped out any income benefits in the last year. It’s true that the company has a strong dividend cover ratio of 1.5. This means the income’s covered easily by the latest earnings. It’s a company I think has good value, but having all the portfolio money in one stock’s quite risky. That’s why an investor could consider including the company as part of a diversified income portfolio instead.

Balancing yield with risk

The £20k could be split between five different shares, with £4k in each. An investor can still include the highest-yielding options, but it provides diversification. Alongside the SDCL Efficiency Income Trust, they could consider the NextEnergy Solar Fund, Ithaca Energy, Ashmore Group and Foresight Environmental Infrastructure.

The blended average yield from this group’s currently 11.61%. So £20k could generate £2,322 next year. This is lower than having just one company, but reduces risk. Some might feel the stocks included are still too risky. In that case, based on the shares that would be picked, some might feel a lower yield in the 6-9% range may be more sustainable.

Ultimately, when trying to squeeze all the juice out of the lemon, an investor would need to up the risk if they wanted to strive for a double-digit percentage yield.

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