Probably the easiest way to generate passive income from stocks is to buy them back. FTSE All Shares abstract.

This would give me access to the share price growth and dividend income generated by the 600 largest companies on the London Stock Exchange.

UK shares offer some of the highest yields in the world. Today, the FTSE All-Share is yielding 3.58%. This is well above the 1.32% yield on S&P500New York may beat London in stock price growth, but it can’t match it in revenue, and that’s my point here.

Phoenix Group Holdings can fly

Personally, I prefer to buy individual shares of UK companies because it allows me to generate even more dividend income.

The highest-yielding stocks in my self-invested retirement fund – and some of the highest in the entire FTSE100 – is an insurer Phoenix Group Holdings (LSE: PHNX). Now it’s up 9.31%.

Sky-high profits could prove frail. But Phoenix’s profits appear sustainable. Management has increased shareholder payouts in seven of the past nine years. It has frozen them in the other two (and one of those years was the pandemic, so that’s understandable).

Dividend stocks need to generate a lot of cash, and Phoenix looks solid on this list. Last year, the company targeted cash generation of £1.8bn and made £2bn.

It operates in a competitive market where rising inflation has driven up the cost of claims. I don’t expect Phoenix’s share price to skyrocket, but it could rise as interest rates fall and savers receive less income from cash and bonds.

Dividends in full

Buying individual stocks isn’t for everyone. An inexpensive tracker like Vanguard FTSE UK All Share Index Unit Trust spreads the risk while offering a decent second income. There is no upfront fee and a very low fee of 0.06% per annum.

Let’s say I’m infirmed of writing about shares and want to retire. According to the Pensions and Lifetime Savings Association, a single retiree needs £31,300 a year to have a “moderate” income.

I’m going to get the full modern state pension, currently worth £11,502, so that leaves me with a further £19,798. To generate this from the FTSE All-Share tracker alone, I’d need a total of £553,016, based on today’s yield of 3.58%.

That’s a lot of money, but it shows how much we all need to save to have a decent retirement. It’s crucial to start early.

If I invested £250 a month and grew it by 5% each year, I would have £528,095 after 30 years. So I would be pretty close to my target. This assumes my portfolio returns an average of 7% per year after fees, which is broadly in line with the long-term FTSE return.

If I wanted to stop working before retirement, I would need even more in my tracker. Investing is the best way I know to generate a second income, but as my data shows, it doesn’t happen overnight. That’s why I’m buying individual stocks to speed up the process. By doing so, I hope to crush my passive income goal in a substantial way.