For UK investors looking to grow wealth without constant trading, US dividend stocks and other passive income strategies offer an attractive opportunity. With some of the world’s biggest companies providing reliable dividend payments and various investment vehicles designed for income generation, the US stock market can be a powerful tool for building long-term financial security.
But how exactly can UK investors benefit from US passive income opportunities? From dividend stocks to Real Estate Investment Trusts (REITs) and covered call ETFs, this guide explores the best ways to generate passive income from US stocks, including how to handle taxes and currency fluctuations.
Why US Stocks Are Ideal for Passive Income
The US stock market is home to some of the most stable and profitable dividend-paying companies in the world. While the FTSE 100 offers many high-yield stocks, US stocks provide stronger dividend growth, helping investors protect their income against inflation over time.
Key reasons why US stocks are great for passive income:
- Consistent dividend growth: Many US companies, such as Procter & Gamble (PG) and Johnson & Johnson (JNJ), have increased their dividends annually for decades. Talking about stocks rising dividends for decades, we did a list with Top 25 Dividend Champions for steady income.
- Quarterly dividend payments: Unlike many UK stocks that pay dividends twice a year, most US stocks pay every three months, providing a more frequent income stream.
- Diversification: The US market offers a wider variety of dividend stocks, including tech, healthcare, and consumer staples, reducing risk.
Best US Dividend Stocks for UK Investors
Some of the best passive income opportunities come from US dividend aristocrats—companies that have increased dividends for at least 25 consecutive years. These companies provide reliable payouts, even in economic downturns.
Top US Dividend Stocks for Passive Income
- Johnson & Johnson (JNJ) – A global healthcare giant with a strong track record of dividend growth.
- Procter & Gamble (PG) – A consumer goods powerhouse behind brands like Gillette and Pampers, known for steady dividends.
- Coca-Cola (KO) – A global leader in beverages with over 60 years of dividend growth.
- McDonald’s (MCD) – A fast-food giant with strong global sales and reliable dividends.
- PepsiCo (PEP) – Diversified across snacks and beverages, providing stable income.
These companies not only pay dividends consistently but have also shown long-term stock price appreciation, making them great for both income and capital growth.
High-Yield US Dividend Stocks for Maximum Income
While dividend aristocrats offer stability and growth, some investors prefer higher-yielding stocks for immediate passive income. These stocks may come with higher risks, but they provide larger payouts.
Top High-Yield US Dividend Stocks
- Altria (MO) – A tobacco company with a high dividend yield (often 7-9%).
- Verizon (VZ) – A telecom giant offering stable cash flow and a 5-6% dividend yield.
- ExxonMobil (XOM) – An energy stock with a strong dividend history and a 4-6% yield.
- Realty Income (O) – A REIT known as “The Monthly Dividend Company,” paying investors every month. We chose this one as one of our dividend stock purchase on week 5 for the dividend stocks challenge
- AT&T (T) – A telecom stock with a high yield but a history of dividend cuts—riskier but still appealing.
These stocks can provide higher income, but investors should check financial health before investing, as some high yields signal financial instability.
US REITs: Monthly Passive Income from Real Estate
Real Estate Investment Trusts (REITs) are another great way for UK investors to earn passive income from US stocks. REITs own income-producing properties and distribute at least 90% of taxable income as dividends.
Best US REITs for Passive Income
- Realty Income (O) – The most famous US REIT, paying a monthly dividend from rental income.
- Simon Property Group (SPG) – A retail REIT focused on shopping malls and outlets.
- American Tower (AMT) – A REIT that owns telecom towers, benefiting from 5G expansion.
- Prologis (PLD) – A logistics and warehouse REIT, growing due to e-commerce demand.
For UK investors, REITs provide a way to invest in US real estate without owning physical property, while benefiting from steady passive income.
Covered Call ETFs: A Lesser-Known Passive Income Strategy
Covered call ETFs are a unique way to generate higher income from US stocks. These funds use an options strategy to sell call options on their holdings, collecting premium income in exchange for capping upside gains.
Best Covered Call ETFs for Passive Income
- Global X NASDAQ 100 Covered Call ETF (QYLD) – Writes covered calls on the NASDAQ 100, offering a high yield (often 10-12%).
- JPMorgan Equity Premium Income ETF (JEPI) – A lower-volatility option with a yield around 7-9%.
- XYLD and RYLD – Similar covered call ETFs that focus on different stock indices.
These ETFs provide exceptionally high dividend yields, but investors sacrifice potential stock price growth in exchange for passive income.
How UK Investors Can Minimise Taxes on US Dividends
One of the biggest concerns for UK investors in US dividend stocks is taxation. The US government applies a 30% withholding tax on dividends, which can eat into your returns. However, UK investors can reduce this to 15% by filling out a W-8BEN form with their broker.
Steps to Reduce US Dividend Tax:
- Fill out a W-8BEN form – Available from most UK brokers, this reduces the US dividend tax from 30% to 15% under the US-UK tax treaty.
- Hold US stocks in a Stocks & Shares ISA or SIPP – While ISAs won’t eliminate US dividend tax, a SIPP can provide tax advantages on reinvested income.
- Consider growth stocks instead – If you want to avoid US dividend tax entirely, you can focus on US stocks that reinvest profits instead of paying dividends (e.g., Amazon, Google, and Tesla).
Proper tax planning ensures UK investors keep more of their US passive income.
Managing Currency Risk When Investing in US Stocks
Since US dividends are paid in dollars, UK investors face currency fluctuations when converting back to pounds.
How to Handle Currency Risk:
- Reinvest US dividends – Instead of converting to GBP, reinvesting in more US stocks can help mitigate short-term currency fluctuations.
- Use a multi-currency broker – Some platforms allow you to hold USD, reducing conversion fees.
- Hedge currency risk – ETFs and funds are available that reduce currency exposure.
Over the long term, currency fluctuations tend to balance out, so they shouldn’t be a major reason to avoid US dividend stocks, but if you want to know more about this and how it affects your money, have a look on our recent article of how USD affects UK investors.
Should UK Investors Use US Stocks for Passive Income?
For UK investors looking to build a reliable income stream, the US stock market provides some of the best opportunities, including:
- Dividend aristocrats for steady, long-term income growth.
- High-yield stocks and REITs for immediate income.
- Covered call ETFs for higher monthly payments.
With the right strategy—including tax planning and currency management—UK investors can earn passive income from US stocks effectively and profitably. Whether you’re building income for retirement or reinvesting dividends for future growth, the US market offers diverse and rewarding opportunities.
