Making passive income from dividend stocks is a great way to help me earn money. If I own multiple dividend-paying stocks, then I can hope to receive some cash in most months during the year. Sometimes, I might have a specific amount that I want to accumulate over the course of the year. This might to be offset a particular bill, or to add up to enable me to purchase something. If I want to make £1,000 a year, here’s what I’d do.
Points to remember
If I want to make £1,000 a year in income from dividend stocks, I want to choose the right ones. There are a few key points that I need to look at. Predominantly, I want to pick stocks that have a good outlook. This is because I don’t just want the dividend payment for this year, but for multiple years ahead.
Another point I need to consider is the dividend yield on offer. Ideally, I want to pick stocks with a high yield. This way, I don’t have to invest as much of my own money in order to make the £1,000. However, I don’t want to always pick the stock with the highest yield, as that can be unsustainable.
From the below four FTSE 100 stocks, I can target an average dividend yield of 8.3%. This would mean that I’d need to invest £12,048 upfront. This could then give me annual income of £1,000, assuming nothing materially changes. I have to remember, of course, that such a payout isn’t guaranteed.
The dividend stocks I’d choose
The first stock that I’d look to buy is Phoenix Group. The current dividend yield on offer is 7.31%, with the share price down 2.3% over one year. Phoenix Group operates in the insurance sector and has a track record of strong cash generation. This has enabled dividend growth over most of the past decade for investors. I have no reason to doubt that this won’t continue into the future, so would add this into my portfolio. One risk I do need to be aware of is that the pension policies the business handles could be negatively impacted with rising interest rates and a falling stock market.
The second company is M&G. The current dividend yield on offer is 9.23%, with the share price up 30% over one year. After being spun out of Prudential, the business has been performing well. I think it has a stable business model, generating revenue from assets under management. One risk is that if we do see another stock market crash, investors might pull funds out, which could hurt M&G.
The final dividend stock is British American Tobacco. The current dividend yield on offer is 8.34%, with the share price up 3% over one year. Some might find it too much of a risk to include a tobacco company in their portfolio due to falling demand. But the reality is that traditional nicotine or vape products are still going to have a large market for years to come. The business has been around since 1902, so if we’re talking about sustainability, BATS ticks the box for me.
Overall, by investing in these three dividend stocks, I can look to achieve my passive income goal.
jonathansmith1 has no position in any share mentioned. The Motley Fool UK has recommended British American Tobacco and Prudential. 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.
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