according to National Bureau of Statistics (ONS), the average annual salary in the UK is just under £30,000.
I can live comfortably with so much money. Therefore, getting it from stock dividends allows me to retire from paid work.
Passive income from stock dividends
For me, dividends are one of the best sources of passive income.But how big will it be Stock portfolio Need to generate an annual dividend payment of £30,000?
A reasonable estimate comes from observing the company’s dividend yield FTSE 100 index.this London Stock Exchange Indicates that the current rate of return is close to 3.5%. Therefore, I can deposit my money into the tracking fund and reap the income. A yield of 3.5% requires a passive dividend income of £30,000 per year. My calculations show that to achieve this goal requires an investment worth nearly £860,000.
However, the dividend yield of the FTSE 100 Index is not a static number. Due to the pandemic, companies in the index have been under pressure. Historically, the index has a higher rate of return. But, to be fair, it is also lower.
However, the Footsie tracking fund is not the only investment that provides dividends. Some individual company stocks have higher yields. I can use them to create a portfolio.For example, energy companies State Grid The rate of return exceeds 5%.And smoking products company British American Tobacco Higher than 8%.
But the scale of dividends paid by the company depends on the strength of the underlying business. Directors have the right to raise, lower and cancel shareholder dividends at any time. They do it often. For example, we saw a lot of stagnant dividends during the pandemic.
On the other side of the discussion, companies usually plan to increase their dividends every year. In fact, when the underlying business performs well, many companies use a progressive dividend policy to reward shareholders.
However, in general, I think the 3.5% estimate used in the figure above is at least realistic and may be conservative. Therefore, I carefully choose a portfolio worth 860,000 pounds.
My goal is to increase the value of my stock portfolio to that level by investing new funds in British stocks that I carefully study and select every month. My focus is on the process of compounding returns. Therefore, my goal is to select stocks of companies with growth potential. In the process, I reinvest all dividends and other cash proceeds.
Of course, stock prices and dividends can go up and down. Sometimes, if there is a problem with the underlying business, even the stocks I carefully choose may cause the investment to fail. In fact, stocks have both risk and positive potential.
Nevertheless, I am accepting uncertainty and the goal is to build my investment tank over time.
I am looking at stocks like this:
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Kevin Goldbold There is no position in any of the above-mentioned shares. Motley Fool UK recommended British American Tobacco and National Grid. The views expressed by the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we made in subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a variety of different insights, We are better investors.