Investors seeking passive income have more options than ever, but choosing between cash savings and dividend stocks requires careful thought about risk and reward.
Interest rates in the UK are expected to rise later this summer, making Cash ISAs a more attractive proposition for cautious savers looking to put their money to work.
However, the stock market continues to offer a compelling alternative, with elevated dividend yields providing regular cash payments to investors willing to accept a higher degree of risk.
The starting question for any investor is how much risk they are comfortable taking on, as the yield achievable on savings can vary considerably depending on that tolerance.
The FTSE 100 average dividend yield currently sits at around 3%, and building a diversified portfolio around this level carries relatively low risk of any individual company cutting its dividend.
Targeting stocks yielding between 8% and 10% carries greater risk, as high yields are sometimes a warning sign caused by a falling share price rather than genuine financial strength.
At the same time, some companies do sustain high dividend yields over the long term, and the right stock at that level can offer a genuinely rewarding return for investors who are comfortable with the trade-off.
If someone targets a dividend yield of 7%, then investing £14,285 at that rate could generate £1,000 in passive income over the course of a year, though this is never guaranteed.
One stock worth examining in this context is Supermarket Income REIT (LSE: SUPR), which has seen its share price climb 8% over the past year and currently offers a dividend yield of 7.14%.
The real estate investment trust owns a portfolio of supermarkets let to major operators including Tesco and Sainsbury’s on long-term leases, providing a reliable and predictable stream of rental income.
These supermarket sites are also increasingly being used as fulfilment hubs for online grocery orders, making them strategically important assets for tenants and strengthening the REIT’s position.
In its latest half-year report, the company noted that “non-discretionary grocery spend continues to demonstrate growth,” which bodes well for the financial health of its key tenants.
The report also pointed to longer-term opportunity, stating that “the growth opportunity within grocery real estate remains highly compelling with supermarket sales reaching record highs in December 2025.”
This strong trading environment should allow Supermarket Income REIT to deploy more capital during the year ahead, with that new investment expected to start generating income relatively quickly.
The company has also signalled confidence in the sustainability of its dividend, with management stating that “the company is now targeting a sustainable minimum dividend uplift of 2% per annum for FY27.”
Rising interest rates do represent a notable risk for the trust, as higher borrowing costs will feed directly into the rates payable on any new debt taken on to fund future projects.
Nevertheless, with rental income underpinned by long leases, high occupancy rates, and tenants operating in the resilient grocery sector, the company’s cash flows have remained robust.
For investors with £14,285 to put to work and an appetite for a modest level of risk, Supermarket Income REIT presents a credible route to generating a four-figure annual passive income.