I use my Stocks and Shares ISA for both growth and income. But today, I’m focusing on how I’d turn my next £20,000 investment into pure passive income.
Dividend shares are the key to my plan. Dividend-paying stocks should provide me with regular and reliable income from my investment.
As they’re essentially a share of company profits, I should benefit from owning profitable companies. And, typically every quarter, the cash would hit my account.
Running the numbers
To earn £780 a month in passive income equates to £9,360 a year. That’s almost half the sum of my ISA. Bear in mind that a single £20,000 Stocks and Shares ISA won’t be enough to earn this sum of dividends.
That’s because even the best basket of dividend shares might yield around 8% right now. By my calculations, I’d need a much bigger pot.
But by diligently saving and investing regularly, I should be able to create a large enough ISA within five years.
By investing the maximum possible £20,000 in dividend shares every year for five years, I calculate that I’d potentially build a pot worth over £117,000. That’s a far more realistic sum from which to earn my targeted second income.
An ISA dividend strategy
There’s no shortage of high-dividend UK stocks. But there are a few points to consider when sourcing the best shares.
For instance, the biggest dividend yield isn’t always the best option, in my opinion. For instance, a stock that offers a 15% yield might be hiding some underlying issues.
A jumbo yield might not be sustainable, and company management could decide to cut or suspend the payment.
So if 15% is too high, what’s a good number? Well, I’d consider 6-9% to be an optimum yield for dividend shares.
In addition to its yield, it’s important that investors consider other factors too. As dividends are typically paid from earnings, I prefer companies that offer stable profits and signs of steady growth.
Dividend history is a key component, in my opinion. It can’t guarantee the future, but many years of consistent payments speaks to management’s policy on the matter.
What I’d buy
The simplest way to invest in dividend shares could be to buy a fund like iShares UK Dividend UCITS ETF. It’s made up of around 50 UK dividend shares, and on average it currently yields around 6% a year.
I’d allocate some of my money to this fund. But to reach my target goal, I reckon I’d also need to own some higher-yielding individual shares.
Some FTSE 100 shares that match my criteria right now include Phoenix Group, Legal & General, and British American Tobacco.
If I had spare funds to devote to a dividend income strategy, I’d buy the fund and all three shares. By doing so, I should achieve an average yield of 8%.
That should be more than enough to reach my passive income goals. I’d still need to monitor them in case something drastic changes with any of my companies but, overall, it should be a relatively hands-off approach.
The post How to turn a £20k Stocks and Shares ISA into a £780 monthly passive income appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
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More reading
Best British value stocks to buy in July
Here’s the Rolls-Royce dividend forecast for the next THREE years!
2 FTSE 100 dividend shares I’m avoiding in July!
Is FTSE 100 company National Grid a no-brainer stock for dividend investors?
How to turn a £20k ISA into a second income of £10k a year!
Harshil Patel has positions in British American Tobacco P.l.c. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
I use my Stocks and Shares ISA for both growth and income. But today, I’m focusing on how I’d turn my next £20,000 investment into pure passive income.
Dividend shares are the key to my plan. Dividend-paying stocks should provide me with regular and reliable income from my investment.
As they’re essentially a share of company profits, I should benefit from owning profitable companies. And, typically every quarter, the cash would hit my account.
Running the numbers
To earn £780 a month in passive income equates to £9,360 a year. That’s almost half the sum of my ISA. Bear in mind that a single £20,000 Stocks and Shares ISA won’t be enough to earn this sum of dividends.
That’s because even the best basket of dividend shares might yield around 8% right now. By my calculations, I’d need a much bigger pot.
But by diligently saving and investing regularly, I should be able to create a large enough ISA within five years.
By investing the maximum possible £20,000 in dividend shares every year for five years, I calculate that I’d potentially build a pot worth over £117,000. That’s a far more realistic sum from which to earn my targeted second income.
An ISA dividend strategy
There’s no shortage of high-dividend UK stocks. But there are a few points to consider when sourcing the best shares.
For instance, the biggest dividend yield isn’t always the best option, in my opinion. For instance, a stock that offers a 15% yield might be hiding some underlying issues.
A jumbo yield might not be sustainable, and company management could decide to cut or suspend the payment.
So if 15% is too high, what’s a good number? Well, I’d consider 6-9% to be an optimum yield for dividend shares.
In addition to its yield, it’s important that investors consider other factors too. As dividends are typically paid from earnings, I prefer companies that offer stable profits and signs of steady growth.
Dividend history is a key component, in my opinion. It can’t guarantee the future, but many years of consistent payments speaks to management’s policy on the matter.
What I’d buy
The simplest way to invest in dividend shares could be to buy a fund like iShares UK Dividend UCITS ETF. It’s made up of around 50 UK dividend shares, and on average it currently yields around 6% a year.
I’d allocate some of my money to this fund. But to reach my target goal, I reckon I’d also need to own some higher-yielding individual shares.
Some FTSE 100 shares that match my criteria right now include Phoenix Group, Legal & General, and British American Tobacco.
If I had spare funds to devote to a dividend income strategy, I’d buy the fund and all three shares. By doing so, I should achieve an average yield of 8%.
That should be more than enough to reach my passive income goals. I’d still need to monitor them in case something drastic changes with any of my companies but, overall, it should be a relatively hands-off approach.
The post How to turn a £20k Stocks and Shares ISA into a £780 monthly passive income appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
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setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#ffffff”, ‘color’, ‘#FFFFFF’);
})()
More reading
Best British value stocks to buy in July
Here’s the Rolls-Royce dividend forecast for the next THREE years!
2 FTSE 100 dividend shares I’m avoiding in July!
Is FTSE 100 company National Grid a no-brainer stock for dividend investors?
How to turn a £20k ISA into a second income of £10k a year!
Harshil Patel has positions in British American Tobacco P.l.c. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
