Buying these 6 dividend powerhouses could make me £5k+ in passive income

Jon Smith explains which top stocks he’d buy to build up his passive income levels to £5k a year, starting right now.

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 black woman using a mobile phone in a transport facility

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.

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.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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!

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands Plc. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »

Modern suburban family houses with car on driveway
Investing Articles

Down 59% from its 12-month highs, is this FTSE 250 stock too cheap to ignore?

Shares in FTSE 250 housebuilder Vistry are almost certainly too cheap to ignore. But are they discounted enough to offset…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

As the S&P 500 struggles to recover, here’s what Warren Buffett’s doing

The S&P 500 is fighting to regain its February highs amid ongoing trade tariff uncertainty. Our writer looks to the…

Read more »