Building a portfolio that can generate serious passive income isn’t something that’s easy. Trying to predict future dividend payments from companies for years ahead carries a certain level of risk. However, to some extent this is unavoidable. If I can make a start with dividend stocks that are hot right now (and use my approach as a template for the future), I can hope to reach my goal.
Starting with the stocks
I’ve identified six stocks that are on my watchlist to potentially buy in coming months to put this strategy together. All the stocks are either in the FTSE 100 or FTSE 250. These are Target Healthcare REIT (8.79%), Imperial Brands (7.03%), Glencore (6.38%), Ashmore Group (6.43%), Close Brothers (6.59%) and BT Group (5.39%). The current dividend yields are in brackets.
I don’t have the ability to run through my reasoning on every stock in detail. Yet there are appealing characteristics in all of my picks. For example, all have an above average yield. I don’t see the point in picking a stock with a 3.5% yield when I could simply buy a FTSE 100 income tracker.
I’ve also made sure that I don’t have stocks from the same sector. My ideas include exposure to property, finance, mining, consumer discretionary and utilities. In this way, I’ve attempted to diversify my money both by holding multiple stocks and also stocks from different areas.
Increasing income potential over time
If I take £1,000 and equally invest in the six companies, I’ll have an average dividend yield of 6.76%. So over the course of the next year, I should generate just under £68 in income.
This is a far cry from my aim of £5,000 a year! But I haven’t finished by just parking £1,000 in the dividend shares. I’ll be able to increase my money in all stocks in two ways. I’ll take the £68 from the next year and put that back into the portfolio, buying more of the same shares. I’ll also be making money from my usual sources of income. I can take a monthly amount from this and invest again in the same stocks.
If I assume that I can reinvest at the same dividend yields over time and that I can afford to invest £450 each month, the numbers quickly add up. In fact, after a decade I’d have a pot worth over £78,000. In the following year, I could earn £5,300 in dividend payments. This would reach my goal.
Not reinventing the wheel
My strategy isn’t a complicated one. It relies on me being disciplined and also on my stock picks performing well. The latter is a risk. Yet I do have the flexibility to invest new money into different stocks that are hot in years to come. Therefore, I can manage this carefully. I feel that my goal is realistic, and there’s no time like the present!
