With no savings, here’s how I’d invest £1,000 a month to aim for £31,300 in annual passive income

Starting from nothing, Stephen Wright thinks UK dividend stocks might make earning £31,300 in passive income easier than it first seems.

| 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.

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

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.

The cost of living keeps going up and isn’t showing any obvious signs of stopping. With that in mind, I think it’s important to find ways of offsetting this by earning passive income

According to the Pensions and Lifetime Savings Association, a single person needs £31,300 in annual income for a ‘comfortable’ retirement. And dividend stocks can be a great way of doing this.

No savings? No problem!

There’s no way around the issue that earning £31,300 in passive income is going to take a lot of capital. I think it would probably need around £675,000.

Should you invest £1,000 in Primary Health Properties 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 Primary Health Properties made the list?

See the 6 stocks

Even starting from nothing though, I think it might be achievable with some disciplined regular saving. With £1,000 a month, an investor could, over time, build a significant portfolio.

Over the last couple of decades, the FTSE 100 has returned just over 6% a year. At that rate, a £1,000 monthly investment could grow into £680,000 within 25 years.

Obviously, that’s a long time. But it means the best time to get started is now – the longer investors wait, the longer it takes to achieve 25 years of returns. 

Dividend stocks

The immediate question is where to invest to aim for a 6.5% return over the long term. I think dividend stocks are the best opportunity. 

With interest rates currently high, the strong returns on cash and bonds might look like a good idea. But I have my doubts about this strategy. Over the long term, I’m expecting interest rates to be lower than they are at the moment. As a result, I think returns from cash and bonds to fall from their current levels.

With the best dividend stocks though, I expect their returns to grow over time. So even if yields look similar to bond returns at the moment, I think shares are clearly the better long-term choice.

Primary Health Properties

One example that stands out to me at the moment is FTSE 250 real estate investment trust Primary Health Properties (LSE:PHP). The company leases 513 properties across the UK and Ireland.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Higher interest rates have been a challenge for the company. They weigh on the value of its assets and increase the cost of the debt it uses to fund operations.

But I see the market’s concerns here as an opportunity. The stock currently comes with a 7% dividend yield and I think there’s scope for this to grow by increasing rents. 

On top of that, with 89% of rent coming from the NHS, the chance of defaults seems low. As a result, I think the share price coming down below £1 is an unusual opportunity to buy the stock.

Risks and rewards

The risk of a change in government policy leading to a decline in demand is something to be aware of with Primary Health Properties. And this is especially significant in an election year, like 2024.

On balance though, I think the stock is a great choice for long-term passive income. That’s why I own it in my portfolio and why I see the recent decline in the share price as a buying opportunity.

Should you invest £1,000 in Primary Health Properties 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 Primary Health Properties made the list?

See the 6 stocks

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.

Stephen Wright has positions in Primary Health Properties Plc. The Motley Fool UK has recommended Primary Health Properties 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.

Our best passive income stock ideas

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

Investing Articles

As Lloyds launches a £1.7bn buyback, is the share price too cheap to ignore?

Car loan mis-selling and a full-year profit miss combine to push the Lloyds share price up after FY results. It…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Here’s how investors could target £4,973 in passive income from a £10,000 holding in this FTSE 250 media gem

This FTSE 250 firm generates a very good yield that I think might deliver exceptional returns over time. And it…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 21% from May despite excellent Q4 2024 results, is GSK’s share price an irresistible bargain to me now?

GSK’s share price has fallen a long way on a combination of factors, but do its recent strong results leave…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Which would I buy today, the FTSE 100 or the S&P 500?

The UK's FTSE 100 and US S&P 500 indexes are both trading near record highs. But US stocks look expensive…

Read more »

Investing Articles

I’m in 2 minds about the Vodafone share price. What should I do?

With the Vodafone share price seemingly stuck in a never-ending loop of doom, our writer’s thinking about selling up. But…

Read more »

Investing Articles

£10,000 invested in Greggs shares 10 years ago is now worth…

Greggs shares have performed well over the long run, but recently performance isn’t impressive. Dr James Fox explores the waning…

Read more »

Investing Articles

With a 9.5% yield, could this FTSE 250 share be a dividend gold mine?

Christopher Ruane is eyeing a FTSE 250 with a dividend yield approaching double digits. Here's what he likes about it…

Read more »

Investing Articles

2 key reasons Nvidia stock could still soar from here

Even after the chipmaker's stunning performance in recent years, this writer sees reasons that could potentially help propel its share…

Read more »