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Mating is truly a magical event. And I’m calculating what investing in FTSE shares on a regular basis in small amounts will mean to me in 20 or 30 years’ time.
I always like dividends for my portfolio. And I think targeting high yielders could make me a million!
Stock split
The average yield in the FTSE 100 currently sits between 3% and 4%. This should not smell. It’s higher than the Bank of England base rate, so it represents a good place to put my spare cash.
However, some of the top dividend payers in the FTSE 100 are delivering well above average. At the time of this writing, they are some of the highest dividend payers. Persimmon (16% profit rate) Rio Tinto (11%) and Abrdn (10%)
The FTSE 250 has a number of companies delivering a dividend yield of more than 10 per cent.
Now, of course, there is more to investing than just dividend yield. And these products change over time. But this information shows me what my potential return would be if I reinvested those dividend payments.
And if I add a regular £250 per week investment into the mix, the exponential curve can be very steep!
How long will it take to reach £1m?
This approach may take my portfolio value to a million, but with some simple math, I can make an estimate.
If I start with nothing today and buy £250 a week of FTSE shares at an average dividend yield of 10%, my portfolio will be worth £1m by the time I’m 22. And this time, I’m only spending £286k more than I normally would. Weekly payments!
When I compare this to investing in average yielding FTSE shares at say 4%, it would take me 36 years, and I would have put in half of the £1m myself!
For both cases, I assume that I take all of the dividend income at the end of the year and reinvest it immediately.
Other reasons
It is important to consider other factors that may affect this plan.
The companies I invested in to earn a 10% dividend yield fluctuated in value as the stock price went up and down. They may drop their prices, which means it will take a long time to reach my £1m. Or add value, meaning I’ll reach my goal faster.
I’m also worried that the companies I’ve invested in won’t pay 10% dividends for the next 20 or so years. Again, my goal for this effect is to arrive later if the product is reduced.
I might be able to find companies outside of the FTSE indices that yield more than 10%. But for me, this comes with a lot of risk. So I deal with the biggest and most proven businesses listed in the UK.
With interest rates still low, I think high dividend FTSE shares are a great way to grow my portfolio to a million!