£9,000 of National Grid shares can make you £4,166 each year in passive income!

Last year, National Grid (LSE: NG) paid a dividend of 58.52 %. At the current share price of £9.84, this gives a yield of 5.9%. In comparison, the FTSE 100The average yield is currently 3.7% as well FTSE 2503.3%.

I started with £9,000 when I started investing in shares 35 years ago. If I invested that amount now in National Grid stock, this year I would make £531 in income. This is money earned with very little daily effort, such as dividend payments from stocks.

If the rate is equal, this will rise to £5,310 after 10 years, and £18,585 after 35 years.

Of course, dividends will fluctuate over these periods, depending on changes in share price and annual dividend payments.

Turbocharging revenue

This is a much better return than can be made in a regular bank savings account. But it could be huge if the dividends paid are used to buy shares in National Grid – known as dividend compounding. It works on the same principle as leaving interest in a bank account to grow.

Doing this at the same 5.9% yield would make an extra £7,212 after 10 years rather than £5,310. After 35 years, an extra £61,610 would have been made, not £18,585!

The total investment in National Grid would be £70,610, which would pay me £4,166 a year in dividends.

It starts from £0 in the bank

Contrary to popular belief, I think investing in stocks doesn't need a huge amount to get started. Simply talking about an extra beer or coffee a day and investing that money in stocks can make big returns in the long run.

For example, £5 a day (£150 a month) invested in 5.9% shares producing National Grid and compounded will grow to £24,569 after 10 years. This will pay £1,450 a year in income.

On the same basis, the total investment pot would be £209,873 after 35 years. In that time, it will be generating annual dividend payments of £12,383!

Does the business look strong?

Growth in earnings drives the company's payout and share price higher over time. Consensus analysts expect National Grid's earnings to grow 11.6% annually through the end of 2026.

Earnings per share are expected to increase by 7.3% each year until it reaches that point. And the return on equity is expected to be 9.5% during that period.

The main risk for the owner-operator of the electricity transmission system in England and Wales is the high cost of maintaining the grid. It is also imperative to invest in the transition to green energy.

Despite this, its results for the full year 2023/24 showed a 4% increase in operating profit over the previous year – to £4.773bn.

Will I buy shares?

I have a few stocks that are meant to provide me with a high income, and I'm happy with that. But if one of them keeps malfunctioning, I can replace it with the National Grid, depending on how it looks at that point.

I like the company with a good yield and it is an important part of the UK infrastructure.