Aiming to earn £ 1,000 a year from UK dividend stocks

With passive income of £ 1,000 a year is very convenient for me. We plan to achieve that by investing in UK dividend stocks. Method is as follows.

What is a dividend stock?

When a company makes a profit, they can use it in several ways. From time to time, they will pay off their existing debt. Saga Is an example of a company that has a large amount of debt on its balance sheet and does not plan to pay dividends for several years. Companies often use surplus cash to invest in growth.Rapidly expanding companies like S4 Capital And THG Don’t pay dividends because they believe they can spend money to grow their business.

However, in many cases, businesses pay at least some money as dividends. These are payments that the company pays to shareholders and are based on the size of the shareholders’ holdings. A business that generates a lot of cash but lacks attractive growth opportunities is a classic example of dividend stocks.Such UK dividend stocks include: British American Tobacco And National grid..

UK Dividend Stocks as a Passive Income Flow

these Dividends can form a passive flow of income.. That’s why I want to generate £ 1,000 a year by sitting and waiting for dividends to roll in. Of course, there is always the risk that dividends will not be paid.

For example, a company can reduce dividends when restructuring its business as follows: Imperial Brands Last year. Dividends may be reduced in a difficult business environment. Babcock Did. You can also stop paying dividends altogether for some time.

To mitigate this risk, I have invested in various UK dividend stocks. Its diversification is not limited to individual stocks. I also try to invest in different business units.

My £ 1,000 Passive Income Plan

Is FTSE100 The yield is about 3% on average. Therefore, to achieve an annual dividend income of £ 1,000 at that rate, consider an investment pot of around £ 33,400. Can I earn passive income with less income? I think it was done.

My plan is to invest in stocks that pay higher than average dividend yields. Fortunately, there is no such stock shortage. For example, British American Tobacco pays 7.5%, M & G Also, with a yield of 7.5% Legal & General It is equivalent to 6.4% at the current stock price.

For example, if you could choose a diversified equity group with an average yield of 7%, you would like to generate £ 1,000 a year in passive income in a pot of less than £ 15,000.

UK Dividend Stock Risk

But why do stocks generate more than twice the average?

One explanation is that the average value of 3% is distorted by growth stocks that do not pay dividends. Therefore, a significant number of dividend stocks offer higher than average dividend yields.

However, high dividends are also possible Signal a market assessment of risk.. The market may think that the future outlook for a company looks bleak. If the profit is small, there is a risk that it will lead to a dividend reduction.

But if you want to diversify your portfolio and invest only in attractive companies (rather than just focusing on yields), you want to minimize that risk. With early capital investment, or pots accumulated over time, I hope to generate £ 1,000 a year from the UK dividend stock portfolio.

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Christopher Ann It owns shares in Babcock International Group, British American Tobacco, Imperial Brands, and S4 Capital plc. Motley Fool UK recommends Imperial Brands. The views expressed about the companies in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by exploring different insights, Better investors than us.

Aiming to earn £ 1,000 a year from UK dividend stocks

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