Here’s how £10k a year in high-yield financial stocks could get me a £2,800 a month income

Investing in high-yield stocks has always been a popular strategy for securing long-term income. Is this the perfect time for 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.

Senior couple crossing the road on a city street. They are walking with shopping bags while Christmas shopping.

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.

I’m on the lookout for investments that could earn me some long-term income. And that means high-yield stocks.

Right now, I’m seeing some tasty FTSE 100 dividends. And the ones I most like are from financial stocks.

That’s right, I’m talking about today’s most hammered stock market sector. And at a time when our economic outlook appears dire.

Economic ills

The International Monetary Fund (IMF) reckons the UK economy is set to show the weakest growth in the G7 this year. And I’ve even seen claims that interest rates could stay around 5% for the next five years.

That might not be good for lending, for mortgages, or for banks. Well, higher interest means better lending margins. But that’s no good if nobody wants to borrow anything.

But what was it that famed investor Sir John Templeton said?

Buy when others are selling…

It takes patience, discipline and courage to follow the contrarian route to investment success. To buy when others are despondently selling, to sell when others are avidly buying

Sir John Templeton

Sir John was described by Money magazine as “the greatest stock picker of the century“. So maybe buying at what he called a time of maximum pessimism could help make me rich?

Which financial stocks?

How much might I be able to earn from half a £20k Stocks and Shares ISA allowance stashed in high-yield financial stocks?

I’m going to pick my top two banks, top two insurers, and an investment manager, and see how my income could build up from them.

So that’s Barclays, with a 4.9% dividend yield, and Lloyds Banking Group on 5.8%.

Then I’ll pick Aviva, with its 7.8% yield, and Legal & General at 8.8%.

And finally, let’s add asset manager M&G, on a whopping yield of 10.2%.

How much income?

Now these are all forecasts, so there are definitely no guarantees here. Dividends could rise and fall in the coming years, hopefully with an overall upward trend.

And share prices will almost certainly rise and fall. But, taking today’s figures as a snapshot, splitting £10k equally between these five stocks should get me an overall dividend yield of 7.5%.

Long-term returns

That’s not going to get me very much in year one. But I invest for the long term, with a 20-year horizon.

So if I can put the same £10k into the same shares, and buy new shares with my dividends, each year? Well, at 7.5% a year, in 20 years my pot could grow into a stunning £450k. And an annual 7.5% on that could earn me a very nice £2,800 a month in passive income.

Final thoughts…

Is this realistic? Well, if these dividends remained this high, I’d expect share prices to rise. That means I’d buy fewer new shares each year, and yields should drop.

And if the dividends are cut, I’d expect share prices to fall. So reality might not paint as pretty a picture as this.

I’d never put all my ISA money in one sector anyway, and would always want good diversification.

But I think this shows the potential long term value we could unlock by buying shares when they’re cheap and dividend yields are high.

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.

Alan Oscroft has positions in Aviva Plc and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group Plc, and M&g 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.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

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

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »