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He FTSE 100 has great stocks for investors looking for passive income. And this is being driven by the fact that interest rates are at their highest levels in years.
Lloyds Banking Group It’s a good example. With a dividend yield of just under 6%, I think this could be a good time to invest.
dividend schedule
Over the past five years, Lloyds has paid out around a third of its profits to shareholders in the form of dividends. But, like many FTSE 100 companies, it does not do so at regular intervals.
The company makes its distributions in May and September. That’s fine, but it means the best way to aim for £1,000 a month is to think in terms of £12,000 a year.
This year, the company paid a total of 2.52 pence per share in dividends to shareholders. So to receive £12,000, you would need to have owned 476,190 shares.
At current prices, that would cost £205,857. I don’t have that on hand, but buying stocks over time could be one way to achieve this.
Reinvestment and capitalization
With £1,000 today, you could start with 2,310 shares. And if I did the same thing again next month and every month after, I could increase my bet even more.
Doing this for several years means you would earn dividends, which you could use to buy even more shares. My initial investment of £1,000, for example, could generate £58.22 next year.
If Lloyds’ share price stays where it is, you could buy another 134 shares, generating even more passive income next year. Repeating this process would allow my earnings to accumulate over time.
How long would it take me to reach 476,190 shares? It’s hard to say exactly, but I think I could get there in 12 years by investing £1,000 a month and reinvesting dividends.
Risk and uncertainty
With Lloyds, the company’s profits are very likely to fluctuate from year to year. And I expect the stock price to do the same.
Importantly, that means the risk of the company not being able to maintain its 2.52p payout in any given year is quite high. However, over time I think the situation is different.
I don’t know what the company’s earnings or dividends will be in a specific year. But I’m confident that the average over a decade will be good.
In other words, the road with Lloyds shares is unlikely to be easy. But investors who buy for the long term will face both the ups and downs and I expect those who stay the course to do well.
Passive income
It is impossible to be 100% sure that £1,000 a month in Lloyds shares for 12 years will be enough to build an investment that generates an annual income of £12,000. But the possibilities seem good to me.
But it doesn’t have to be Lloyds. Unilever offers less volatility with a lower current yield and Halma It has better growth prospects, but they will take time to materialize.
There is more than one way to raise £1,000 a month by investing in the FTSE 100. But I think buying shares gradually and reinvesting dividends is the best way to do it.
