3 ways I’d target a £100 monthly passive income from stocks

The stock market offers lots of choice for passive income investors. Roland Head looks at three strategies he might use for extra income.

| More on:

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.

Young Caucasian woman at the street withdrawing money at the ATM

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.

Passive income from dividend stocks can be a great way to boost your income without needing to take on extra work. Although some initial capital is required, this investment can deliver impressive cash returns over time.

In this article, I want to share three methods I might use to generate an extra £100 per month from the stock market, if I had fresh capital to invest.

#1: a simple passive income

One option I’d certainly consider is a low-cost FTSE 100 index tracker. By holding a low-cost ETF inside a Stocks and Shares ISA, I’m confident I could keep my total costs at less than 0.5% per year.

In addition, investing in a FTSE 100 fund means I’d get exposure to popular UK dividend stocks, such as Shell, GSK, Lloyds, British American Tobacco and BAE Systems.

The FTSE 100 currently offers a forecast yield of 3.9%. To generate an annual passive income of £1,200 (£100 per month), I’d need to invest about £31,000.

However, one downside of a FTSE 100 tracker is that the yield isn’t especially high. With interest rates now nudging 3%, I’d like a higher yield. I reckon my next pick solves this problem.

#2: 40 years of dividend growth

To generate income from large UK dividend stocks, I’d probably choose to invest in an investment trust which specialises in this type of investing.

My choice would be The Merchants Trust (LSE: MRCH). Merchants was founded in 1889. Although its investments have changed, the trust’s goal of providing reliable income plus capital gains to its investors has not.

I think Merchants’ results speak for themselves. The trust has increased its dividend every year since 1982. That’s 40 years of unbroken income growth. Shares in the trust have also outperformed the FTSE 100 over the last 10 years.

The risk, of course, is that past performance is no guide to the future. However, given the trust’s 100-year-plus history, I’d be comfortable trusting my money to Merchants’ managers.

To generate a £1,200 income from the Merchants Trust, I estimate I’d need around £23,500.

#3: high yield from property stocks

My final choice has the potential to generate a higher yield than either of the other two options I’ve discussed.

The UK market has a wide choice of property stocks. I prefer to invest in property through Real Estate Investment Trusts (REITs), due to their focus on dividend income.

Rising interest rates and the market sell-off mean that some attractive dividend yields are now available in this market, in my view.

I’ve selected five REITs specialising in different types of property. I’d be happy to buy these together to form a mini-portfolio of property stocks. Although I’d probably want some other diversification too, I’d be comfortable using these for passive income.

REITForecast dividend yieldType of property
Target Healthcare REIT7.6%Care homes
Land Securities6.5%London offices and large retail sites
Supermarket REIT5.9%Supermarkets
Tritax Big Box REIT4.9%E-commerce warehouses
Custodian REIT6.3%Regional UK commercial property
Average yield6.2% 

If I invested equal amounts in each of these five REITs, they would have an average forecast dividend yield of 6.2%. To generate £1,200 of passive income each year, I estimate I’d need to invest £19,500.

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.

Roland Head has positions in British American Tobacco, Shell plc, and TARGET HEALTHCARE REIT LIMITED ORD NPV. The Motley Fool UK has recommended British American Tobacco, Custodian REIT , GSK plc, Landsec, Lloyds Banking Group, and Tritax Big Box REIT. 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

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »