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With seemingly dozens of passive revenue concepts floating round in 2025, one among my favorite strategies is to personal dividend shares.
This technique has a protracted historical past and isn’t only a new fad. Dividend shares are sometimes from corporations which have ample money flows and constant income. As such, they are typically extra mature and established.
Incomes passive revenue from shares
Let’s crunch some numbers to see how an investor might earn £1,357 in month-to-month passive revenue. Which means they’ll must generate a £16,284 annual revenue.
To try this they’ll want a sizeable pot. The quantity to take a position is determined by the typical dividend yield of the portfolio.
Proper now, the FTSE 100 presents a yield of round 3.5%. However many dividend shares provide 6%-8%. Some even provide over 10%, however these may contain extra threat or could possibly be unsustainable.
Right here’s the funding required at totally different yields:
| Dividend yield | Calculation | Whole required |
| 4% | £16,284 / 0.04 | £407,100 |
| 6% | £16,284 / 0.06 | £271,400 |
| 8% | £16,284 / 0.08 | £203,550 |
The particular person might go for a balanced method and goal a 6% dividend yield. In accordance with my calculations, meaning they’ll want a pot value £271,400.
Lifelike targets
Realistically, constructing such an quantity received’t be attainable with one single £10,000 funding. As an alternative, they’ll must make common and constant contributions to develop it over time.
On common, I feel it’s real looking to realize a 9% return per yr. On this state of affairs, this is able to possible be from a 6% dividend yield and three% of share value progress.
After 10 years, I count on the pot to be value over £150,000. However that’s nonetheless off course by over £120,000. Considerably surprisingly, this could solely take one other 4 to 5 years. And that’s as a result of wonders of compounding.
Selecting the very best dividend shares
This technique focuses on blue-chip shares. These corporations are massive, well-established, and financially strong.
Within the UK, many of those are discovered within the FTSE 100. One Footsie dividend share the investor might contemplate proper now could be insurance coverage enterprise Aviva (LSE:AV.).
It at present presents a 6.4% dividend yield, and has been distributing dividend funds to shareholders for many years.
One of many issues I like about insurance coverage corporations like Aviva is that they’re constructed on predictable money flows. They accumulate premiums upfront from coverage holders, and pay out any claims later. The distinction between the 2 is often invested.
A resilient enterprise
2024 was a powerful yr for Aviva. It reported a 20% rise in working revenue, with insurance coverage gross sales climbing 12%. It shifted in the direction of extra capital-light progress and raised its dividend.
In its most up-to-date replace, it additionally cited clear buying and selling momentum, sturdy progress, and untapped potential forward. This all sounds encouraging to me.
Regardless of being a comparatively resilient enterprise, there are dangers to pay attention to. For example, claims associated to floods, storms, and wildfires are rising. This may negatively impression underwriting income.
It’s additionally essential to diversify investments to unfold threat and keep away from placing all of the eggs in a single basket.
The investor might additionally contemplate including Nationwide Grid and Schroders for this passive revenue technique. Each provide a dividend yield of round 6% and meet the necessities outlined earlier.
