Glossary · UK
What is Natural Yield (Income Investing)?
Living off the dividends and interest a portfolio produces without selling the underlying capital.
Full Definition
Natural yield is the income a portfolio generates from dividends, bond coupons and interest, which an investor draws as spending money without selling the underlying assets. The appeal is leaving capital intact to keep producing income and potentially grow, avoiding sequence-of-returns risk from selling units in a falling market. In the UK, dividends outside a wrapper use the GBP 500 dividend allowance for 2026/27, with rates of 10.75%, 35.75% or 39.35%, while savings interest may fall within the Personal Savings Allowance. Holding income-producing assets in an ISA or pension shelters the yield from tax. Natural yield often produces less than a fixed withdrawal rate, so it may not fully fund spending. This is not advice; consider the savings, dividend-tax and fire calculators and gov.uk guidance.
How Natural Yield (Income Investing) is calculated
annual_income = portfolio_value x natural_yield_rate- portfolio_value
- total value of income-producing holdings
- natural_yield_rate
- weighted dividend and interest yield
Worked example: A GBP 500,000 portfolio yielding 3.5% produces GBP 17,500 of income a year without selling capital.