How I’m using £100 a month to try to earn £10k a year in passive income

I am on the hunt for high-yielding dividend stocks to earn me £10k a month in passive income by the time I’m 50. Here’s how I plan to do it.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Mature people enjoying time together during road trip

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are many ways to earn a profit in the stock market (and an equal amount of ways to make a loss!). A favourite method among investors to earn passive income is by owning dividend shares.

With inflation and interest rates on the rise, the stock market is becoming increasingly volatile. For this reason, I am on the hunt for high-yielding, low-risk dividend stocks I can add to my portfolio.

By investing as little as £100 a month into these stocks, and reinvesting the dividends, I believe I could be making well over £10k a year by the time I retire. Here’s how I plan to do it.

Should you invest £1,000 in ITV right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if ITV made the list?

See the 6 stocks

The method

I am currently 21, so I would be looking to pay £100 a month for the next 30 years. A spare £100 may be hard to find, but for context, skipping a £3 morning coffee each day pretty much covers it!

The key here is to keep up my payments and reinvest my dividends. By reinvesting my dividends, I can benefit from compound interest. For instance, starting at £0, and by investing £100 a month for 30 years, I could end up with well over £400,000, assuming a 13% annual total return (dividends plus company growth).

Assuming the above growth rate, I would reach my £10k target by year 18.

The stocks

I want to be earning passive income, which means I need to pick high-yielding dividend stocks. The best companies to pick here are slow-growth, stalwart industry giants. These companies are the most likely to turn over regular dividends and keep producing cash flows. A small amount of industry research and checking historic dividend payments should help me here.

A method I would plan to use in order to minimise risk would be to diversify my portfolio. This means picking high-dividend stocks across separate industries. Therefore, if one sector underperforms, its losses may be made up for by growth in another sector.

With the macroeconomic outlook looking increasingly uncertain for the next few years, this could be an essential method to employ.

The risks

While this sounds great on paper, it is not a foolproof method. There is no way of predicting a stock’s future dividend payments or annual returns (if there was, we would all be rich!).

Events like the Covid-19 pandemic force companies to skip dividends and even stop paying them for long periods of time. For this reason, it might take me longer than 18 years to reach my goal of £10k in passive income.

However, by year 30, I am confident that I will be able to hit that goal, even if I have to make some minor changes to my dividend portfolio along the way.

Should you buy ITV now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

More on Investing Articles

Abstract 3d arrows with rocket
Investing Articles

Looking for FTSE 100 stocks? Here’s one I think could lift off in 2025!

Diageo's share price has dropped 15.3% in the year to date. Could it be about to become one of the…

Read more »

Front view of a young couple walking down terraced Street in Whitley Bay in the north-east of England they are heading into the town centre and deciding which shops to go to they are also holding hands and carrying bags over their shoulders.
Investing Articles

Up 15% in a month and still yielding 9.5% – this FTSE second income stock is on fire!

Harvey Jones says wealth manager M&G offers one of the most exciting second income streams on the entire FTSE 100.…

Read more »

Wall Street sign in New York City
Investing Articles

Looking for cheap stocks to buy? 2 reasons now might be the ideal moment!

Amid market turbulence, our writer has not been diving for cover, but actively on the hunt for stocks to buy…

Read more »

Woman riding her old fashioned bicycle along the Beach Esplanade at Aberdeen, Scotland.
Investing Articles

These 2 FTSE 250 stocks now yield more than 10% – is that income sustainable?

Harvey Jones is astonished to discover how much dividend income investors can get from FTSE 250 stocks. These two have…

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

3 promising high-yield FTSE 250 stocks to consider buying right now!

When hunting for lucrative high-yield dividend shares, our writer heads straight for those smaller-caps found in the UK's secondary index,…

Read more »

Tesla building with tesla logo and two teslas in front
Investing Articles

Are Tesla shares now a brilliant long-term opportunity?

Tesla shares have been pummelled by the markets so far this year. Our writer thinks they may have a lot…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Up 22% in a month, has the Rolls-Royce share price restarted its incredible rise?

Even after a storming few years, the Rolls-Royce share price has leapt over a fifth in just one month! Is…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

I’ve been eyeing Nvidia stock, but I just bought this chip giant instead

After a recent fall in the price of Nvidia stock, this writer was considering it but decided to buy a…

Read more »