If you invested £500 a month in S&P 500 income stocks, here’s what it could be worth in a decade
Many UK investors are interested in generating passive income from the stock market. Typically, this is focused on UK stocks, which I get. However, with growing interest in diversifying portfolios and putting money to work in the S&P 500, it’s worth remembering that this can be useful for income and not just high-flying tech stocks. Here’s what the numbers could look like for a US dividend portfolio.
Why the US has income potential
In contrast to building a portfolio using FTSE 100 companies, the S&P 500 offers a much more comprehensive choice given the large number of constituents. However, it means an investor needs to be disciplined. For example, the average dividend yield in the S&P 500 is 1.18%, well below the FTSE 100’s 3.2%. So active stock picking becomes more critical with a broader pool of companies.
Fortunately, there are still some great dividend shares in the index. From looking at different options, I think it’s possible to build a diversified portfolio of six-to-10 stocks with an average yield of 6%. We’re not talking about small firms here in this bucket. Some of the companies that could be included are the United Parcel Service (current yield of 7.1%), Pfizer (6.91%) and Verizon Communications (6.61%).
If an investor put £500 a month in a portfolio averaging 6%, the money could quickly compound. If we assume the dividends get reinvested straight away, after a decade the pot could be worth £82.8k. The following year, £5.3k could be generated solely from income payments.
Of course, dividends aren’t guaranteed. Over the coming years, yields could fluctuate, making the average 6% harder or easier to achieve in practice. But it goes a long way to show that the US has clear dividend potential.
Sweet potential
One stock that could be included is Kraft Heinz (NASDAQ:KHC). It’s one of the worldâs largest food companies, serving up everything from ketchup to chocolate. Even though America is a big market, it’s truly global in size. This means it can generate diversified revenue from having the branded food products in grocery stores in various markets.
Over the past year, the stock is down 19%. This is due to a variety of factors impacting the business. For example, it has cited weak consumer demand in recent updates, along with rising input costs and even currency headaches from the global operations. Even though all of these are risks going forward, I don’t see them as long-term problems.
With the US Federal Reserve likely to cut interest rates again next month, demand in the US could increase. Inflation is easing, and cost pressures may become less of a problem in 2026. Against this backdrop, I think the dividend is sustainable. Over the past six years, it has kept up a consistent quarterly dividend payment. The current dividend is fully covered by the latest earnings per share, giving me further confidence in future dividends.
Finally, let’s not forget that many of the brands sold by the company are staples that have been popular with customers for decades in some cases. I think this is a strong point when looking for ideas that can stand the test of time, making it a stock worth considering for investors looking at this stategy.
The post If you invested £500 a month in S&P 500 income stocks, here’s what it could be worth in a decade appeared first on The Motley Fool UK.
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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
