I’ve just earned £1,104 of passive income in 2 weeks, thanks to blue-chip UK dividend shares
I’m a late convert to the joys of passive income. In my early days as an investor, I mostly focused on growth. I didn’t know what I was missing.
The last month has been a rewarding one, with a string of dividend stocks in my self-invested personal pension (SIPP) dishing out their half-yearly payouts. And they’ve been in a generous mood.
On 9 May, M&G (LSE: MNG) kicked things off by paying me a chunky £458. That was the biggest of the lot, and unsurprisingly so, given that it has the single highest yield on the FTSE 100 at 9.31%.
M&G is a brilliant dividend stock
That’s what attracted me to the wealth manager in the first place. But as ever with a supersized yield like this one, it’s important to check whether it’s sustainable.
Yields are calculated by dividing the dividend per share by the share price. So when a stock price falls but the dividend stays the same, the yield rises. A really high yield can therefore signal trouble. I don’t think that’s the case with M&G.
Its shares are up a modest 8.6% over the last year, and 77% over five years. That latter number flatters it slightly, as it’s measured from the 2020 pandemic lows, when every stock was on the floor.
Financial services stocks have had a bumpy ride in-between, shaken by volatile markets, while higher interest rates have boosted returns on rival income options like cash and bonds. Savers can now get up to 5% a year without risking capital.
Risks and rewards
I’m happy to take the risk to get a higher return. I’ll mitigate it by holding a spread of different stocks, which I plan to keep for the long term. That helps me ride out short-term volatility.
As it turned out, 9 May was a red-letter day as FTSE 100 housebuilder Taylor Wimpey paid me £165. It’s another ultra-high-yielder, offering 8.04% on a trailing basis. No savings account can match that.
On 14 May, FTSE 250 insurer Just Group chipped in £45. All contributions welcome, even modest ones. Given the Just share price is up 38% in 12 months, and 75% since I bought it in November 2023, I’m not complaining.
Lloyds Banking Group picked up the pace by paying me £207 on 20 May, and insurer Phoenix Group Holdings kindly sent me £229 the day after.
Compound growth
In total, I’ve received £1,104 of passive income in a fortnight. I haven’t spent a penny of it. Instead, I’ve reinvested the lot straight back into the same stocks, which means I may earn even more dividends next year.
Of course, payouts aren’t guaranteed. Companies need to generate enough cash to cover them. If dividends are cut, the share price often falls too in a double blow. Still, I’m optimistic about this lot.
The fun is over for now but I should enjoy another income spree in the autumn, when the next set of dividends land. I’ll plough those straight back into my SIPP, to help my pension compound and grow over the years. Then when I finally retire, I’ll draw them as income, to top up my State Pension. With luck, I’ll be getting a lot more by then.
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Harvey Jones has positions in Just Group Plc, Lloyds Banking Group Plc, M&g Plc, Phoenix Group Plc, and Taylor Wimpey Plc. The Motley Fool UK has recommended 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.
