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I hope to get pleasure from a cushty retirement by producing a six-figure second revenue from a portfolio of FTSE 100 dividend shares.
Now appears like a superb time to purchase them, as many are actually low cost whereas providing inflation-busting yields. With luck, I’d even bag some capital progress as soon as the worldwide financial system recovers and market sentiment rebounds.
I ramped up my technique a 12 months in the past, when the FTSE 100 was sliding to round 7,250. This appeared like a superb alternative to choose up discount shares, once they had been out of favour and subsequently low cost.
FTSE 100 worth
At the moment, with the FTSE 100 round 1,000 factors increased at 8,317, I’m glad I took the plunge.
I don’t anticipate large dividend shares to shoot the lights out share-price-wise, however some have carried out properly. My shares in housebuilder Taylor Wimpey (LSE: TW) are up 20.41%, since I began shopping for them final September. Over 12 months, they’re up 26.72%.
This determine doesn’t embrace dividends. On 14 Might, Taylor Wimpey despatched me £158.78. That’s on high of the £79.84 I bought on 17 November. In order that’s £238.62 in whole.
I’m hoping it’ll proceed to ship a gentle stream of dividends that rise over time. I’m inspired by the truth that it has maintained payouts despite the fact that increased mortgage charges have hit property completion and costs.
Taylor Wimpey’s pre-tax earnings fell 42.8% to £473.8m in 2023, with income down 20% to £3.5bn. However nonetheless the share value climbed, and the dividend got here by. The board just lately reported a promising first quarter, so fingers crossed. When the primary rate of interest reduce lands, I think its share value could soar once more.
So how do I flip dividends of only a few hundred kilos right into a £100k passive revenue, as urged within the headline? It appears a giant leap.
Advantages of reinvesting dividends
First, Taylor Wimpey isn’t the one firm sending common chunks of cash with out me having to do something other than maintain its shares.
Final Wednesday, FTSE 100 insurer Phoenix Group Holdings despatched £137.24. The day earlier than that, Lloyds Banking Group paid me £172.09. On 15 Might, Simply Group handed me £36.55. I bought £408.27 from wealth supervisor M&G on 9 Might.
I’ve reinvested each penny, which implies I’m now holding extra of those firms’ shares. They may hopefully generate additional dividends in future. I’ll reinvest these too. And doubtlessly obtain much more dividends because of this. It’s essential to state that dividends aren’t assured. Nothing is when shopping for shares, however the potential rewards make the danger worthwhile.
Let’s say I make investments £10,000 a 12 months in a ramification of shares, and improve that by 5% a 12 months to maintain up with inflation. If I matched the FTSE 100 long-term whole return of 6.9% a 12 months, after 30 years I’d have £1,732,766.
If my portfolio yielded 6% a 12 months, as my present one does, I’d get revenue of £103,966. Inflation means will probably be price much less in actual phrases than right this moment, however it’s nonetheless a mighty return. Each time Taylor Wimpey and the remainder pay me a dividend, I’m just a few hundred kilos nearer to my goal.
