How Much Money Do I Need to Live on UK Stock Dividends? from The Motley Fool

How Much Money Do I Need to Live on UK Stock Dividends?

According to the Office for National Statistics (ONS), the average salary in the UK is only £30,000 a year.

I could live comfortably with that much money. So with such high dividends from stocks, I could retire from professional life.

Passive Income from Stock Dividends For me, dividends are one of the best sources of passive income. But how big should a portfolio of stocks be to earn £30,000 in annual dividend payments?

A reasonable estimate comes from a look at the dividend yield. The London Stock Exchange gives current returns at around 3.5%. So I can invest my money in a tracker fund and get that return. The 3.5% return should result in passive dividend income of £30,000 per year. My calculations showed that an investment of approximately £860,000 would be required to achieve this.

However, the dividend yield of the FTSE 100 is not a fixed quantity. The companies in this index have come under pressure due to the pandemic. And to be fair, it was already low.

But a Footsy Tracker fund isn’t the only investment that pays dividends. Some stocks of individual companies have higher returns. I could use it to build a portfolio. energy company National Grid For example, (LON:) has a return of more than 5%. and company British American Tobacco (LON:), which makes products for smokers, is more than 8%.

However, the amount of dividends paid by companies depends on the strength of the underlying business. Board members have the option to increase, decrease or cancel the dividend whenever they wish for the shareholders. And they often do too. For example, we saw a lot of stalled dividends during the pandemic.

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On the other hand, the compound interest effect, companies often try to increase their dividend every year. As a result, many companies have progressive dividend policies to reward shareholders when the business is doing well.

Overall, however, I consider the estimate of 3.5% used in the above figure to be realistic and probably too conservative. So it makes sense for me to aim for the above £860,000 worth of portfolio.

And I try to increase the value of my equity portfolio by investing new money each month in UK stocks that I have carefully researched and chosen. My focus is on compound interest. That’s why I choose stocks in companies with growth potential. And I reinvest any dividends and other cash gains that come along the way.

Of course, stock prices and dividends can go up and down. And sometimes the stocks I choose carefully can result in a loss of investment if something goes wrong with the underlying company. As a result, stocks carry both risk and positive potential.

Still, I accept the inevitable with the aim of increasing my investment pot over time.

Kevin Godbold does not hold a position in any of the stocks mentioned. This has been translated so that our German readers can participate in the discussion.

The Motley Fool UK recommends British American Tobacco and National Grid. The views of the companies mentioned in this article are those of the author and may therefore differ from official recommendations made by us on our membership services such as Share Advisory, Hidden Winners and Pro. At The Motley Fool, we believe that taking in a variety of insights will make us better investors.

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This article first appeared on The Motley Fool

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About the Author: Forrest Morton

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