£10,000 in savings? Here's how I would aim to turn that into £499 a month passive income!

Reaching the £10,000 mark is a milestone for many savers. It's a great success, but a large nest egg brings challenges. Getting the best bang for your buck is important to consider. After all, it is possible to turn this amount into a small income stream with smart investments.

Savings accounts are eligible. They are more volatile than dividend stocks. However, stock market returns can be very high. Investors who are prepared to accept the risk can be well rewarded.

Here's how I can direct around £500 in monthly income from a mutual fund portfolio with £10k left to invest.

keep up the good work

Building a five-figure savings pot takes dedication. It's a good start but it's also worth keeping those savings habits up.

I would start by investing a sum of £10k, but I would also set aside additional sums from my salary each month to invest. By doing so, I increase my chances of achieving my passive goals.

The share prices of my stocks may go down. By investing throughout the economic cycle, I buy in good times and bad, hoping to find cheap deals along the way.

Investment of dividend

I use a few metrics to evaluate whether I would like to buy a particular dividend stock. These include dividend yield, distribution history, dividend cover, valuation, and share price growth potential.

To demonstrate this in practice, one FTSE 250 stock that I think is worth considering Pets in the Home Group (LSE: PETS). Britain is a country of pet lovers and this retailer is a dominant player in the market.

The company's product portfolio includes toys, accessories, bedding, and medicine for our furry friends. It also offers services from veterinary to grooming.

First, the crop looks attractive. At 4.2%, it exceeds the average of FTSE 100 and the FTSE 250. In addition, an ongoing £25m share buyback program adds value to shareholders.

The company's share history is also interesting. Fees have grown significantly since 2015 and investors have received regular income over the past nine years.

Equity cover is valued at 1.6 times earnings. Admittedly, this is less than the double standard that shows a wide margin of safety. However, it is above the average of 1.5. Below this threshold is usually where I would have the most anxiety.

In terms of valuation, a forward price-to-earnings (P/E) ratio of 13.8 looks reasonable. So far, so good.

One red flag for me is the potential for growth. The Competition and Markets Authority (CMA) investigation into the animal industry is damaging investor confidence. That said, the group's latest trading update showed strong revenue growth in Q1, but regulatory risks should not be overlooked.

Overall, I think there is a strong investment case for this dividend stock.

Combination refund

By investing in a diverse mix of shares like Pets at Home, I could make £499 in monthly income over just over 25 years with modest contributions.

Assuming my portfolio grew at 7% per year and I got a 5% yield on all my holdings, I could reach my goal by investing £10k and an extra £83 a month.

Benefits are not guaranteed so it is not a risk-free activity. But, it doesn't take a fortune to earn a healthy income if everything goes according to plan.