£20,000 in savings? Here’s how to target £841 of passive income each month
Investing money in blue-chip dividend shares is one approach to setting up passive income streams. Not only does that let someone benefit from the hard work of a company with a proven business model, but it can also be tailored to an investor’s personal financial circumstances.
To illustrate, here is how someone with £20k of savings and a willingness to invest for the long term could target £841 on average each month in passive income.
Calculating likely income
That figure is based on the £20k being compounded at 9% annually for 20 years, at which point a 9% yield on it would amount to an average £841 of passive income each month.
The compound growth can come from a combination of dividends and share price growth, although any share price falls would eat into the overall return.
At the moment, the average FTSE 100 yield is around 3.4%. Some blue-chip shares in the flagship index yield much more than that though.
So the investor could practically aim for that 9% compound annual growth rate from a mixture of dividends and share price growth. To reduce risk, it would be sensible to diversify the portfolio across a few different shares. Twenty grand is ample for that.
Finding shares to buy
What sort of shares might deliver the sort of 9% compound annual growth rate I mentioned above as part of the long-term passive income plan?
One I think investors should consider is M&G (LSE: MNG). The name is well known and has a storied history even though it has only been listed as an independent company for a few years.
The FTSE 100 asset manager yields 7.8%. It also has a progressive dividend policy, meaning it aims to grow its dividend per share each year.
Dividends are never guaranteed at any company however. M&G does face risks and one I have been concerned about is investors withdrawing more money from its funds than they put in. If that continues, it could hurt profits.
A recent tie-up with a large Japanese firm (Dai-ichi Life) could help attract new customer investments.
With a market capitalisation of £6.2bn, I see M&G as attractively priced given its strong brand, proven model and customer base in the millions. That could mean there is scope for a higher share price in future.
Starting in a practical way
Dreaming of passive income is one thing – but it takes action to make it a reality. One practical first step could be for an investor to set up an account that lets them put the £20k to use in the stock market, buying income shares.
That might be a share-dealing account, Stocks and Shares ISA or trading app. With lots of options available, it makes sense to spend some time figuring out what suits an individual’s needs best.
The post £20,000 in savings? Here’s how to target £841 of passive income each month appeared first on The Motley Fool UK.
But here’s another bargain investment that looks absurdly dirt-cheap:
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
More reading
- Here are 3 of the largest dividend yields on the FTSE 100
- Here’s how £20k of savings could one day generate £841 of monthly passive income
- Here’s how a £20k Stocks & Shares ISA could earn £1k, £2k, or even £3k of passive income annually
- How much would someone need to invest to earn a £10k passive income each year?
- 3 high-yield dividend stocks, investment trusts and ETFs to target a long-term passive income!
C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.
