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Most of the FTSE 100 Companies have paid some kind of dividend to shareholders in the past year. At the time of writing, only six of the FTSE 100 have a 0% dividend yield. But I’m looking to make sure I pick dividend stocks that will help me reach £1,000 a month in active income for my portfolio.
Reliability
Since I am a long-term investor, the reliability of receiving dividends regularly is important to me. I think targeting historically reliable dividend payers would work best for my portfolio.
My logic here is that if I invest in a company that pays in good times or bad, I’m lucky enough to hit my £1,000 monthly target. I want to know if my payments are coming in the middle of a recession or an economic boom.
My starting point is looking at companies that have continued to pay during uncertain times (such as the Covid-19 pandemic).
I also look at companies that have maintained or grown dividends for a long time each year.
British American Tobacco, BAE Systems And Unilever From that point of view, these are my three favorite companies. All have paid a growing dividend in each of the last 10 years.
High yield
A higher dividend would help me reach my goal by investing a smaller amount in the beginning.
For example, the average dividend yield for the three companies mentioned above is 4.3 percent. So, to earn £12,000 a year in dividends I would need to invest a maximum of £278,000!
But, if I choose high yielding companies, I don’t need to invest much.
A combination of Persimmon, Rio Tinto And Four developments If I invest equally in each, I currently average 12.1% yield. With this product, I would need a portfolio size of £99,000 to reach my £1,000 per month target.
Frequency of payments
It is important to note that listed companies pay their dividends at different frequencies.
Some pay quarterly, others annually. So while my goal is to reach £1,000 in dividends every month, I’m actually likely to get more than that in some months and less in others.
Alternative approaches
It’s not just shares where I can reach £1,000 every month. I could theoretically achieve the same goal if I targeted growth stocks and took regular withdrawals.
However, my concern with this is that the broader economy will affect stock prices across the board. So in a bear market, if I withdraw £1,000 a month I could be significantly reducing my portfolio.
I only invest in the FTSE 100 or FTSE 250 Companies in my portfolio. There are certainly smaller companies that pay more dividends. But going outside the FTSE indices is beyond my investment portfolio’s appetite!
I think building my portfolio with dividend stocks is a great way to earn passive income. I’m working to hit my £1,000 per month goal as soon as possible!