Recurrent income is the passive money I receive over a long period. I can try to get this from various forms of investment, including dividend stocks. In order to try and generate income on a timely basis throughout the year, I need to be smart in my planning. Here’s one way I believe I can make it work.
Thinking about payment timing
Part of my focus is buying stocks that pay out quarterly dividends. There’s no set rule on how often a firm can pay out money to shareholders. In fact, one of the risks with dividend investing is that a company might cut the pay out completely.
Yet as a general rule of thumb, a company will pay out between once a year and once a quarter. This doesn’t mean that I get paid four times as much if I invest in the firm that pays out each quarter. It should tally to the same amount as if the same business decided to just pay out once in a year.
But for my recurrent income prospects, if I can have a diversified selection of stocks that pay out each quarter, I should be able to get to the stage where I’m getting paid money each month.
Both BP (4.71%) and British American Tobacco (9.74%) are good examples of stocks that pay quarterly dividends. The current dividend yield is in brackets.
Dependable companies
The other element that’s key is ensuring I’m buying stocks with a good track record of paying dividends. I can’t realistically expect to bank on a passive stream of money if the stocks I own have a terrible record.
This also includes companies that are only just starting to pay out a dividend. For example, there’s a lot of expectation that Rolls-Royce will likely start to pay out a dividend over the coming year. Yet I still wouldn’t feel comfortable in buying the stock purely for this potential. It’s too risky.
On the other hand, I’d look to buy stocks like United Utilities (4.49%) and Severn Trent (4.32%). Both have at least seven years of consecutive dividend growth. It gives me confidence that if I add these to my portfolio, I should be able to benefit from continued payments going forward.
Getting the numbers right
By getting a mix of stocks that have a good track record, along with others that pay out frequent income, I can hope to build a diversified portfolio.
Let’s assume that I invest £100 each month in each of the four stocks. With a blended average dividend yield of 5.81%, my pot will quickly start to grow in value.
If I reinvest the proceeds for the next decade, my portfolio could rise to a value of £62,132. From that point onwards, I could expect to receive £3,106 each year in dividend income.
Granted, there are risks with trying to predict this far into the future. But it shows that with a well-thought-out strategy, it’s possible to earn good income.
The post How I’d aim for £3.1k in recurrent income from these 4 stocks 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 recommended British American Tobacco P.l.c. and Rolls-Royce 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.
