£100 a month and 3 dividends yield 5.8%+. Would this get me an income of £11,297 a year?

The idea of ​​making money – by doing very little – sounds very attractive to me. This is why I like to invest in dividend stocks.

Unfortunately, I didn't start early in life. With the benefit of hindsight, I should have put all my spare cash into buying stocks and holding them for the long term. Of course, life is for living, so there should be a balance between saving and spending. However, even in my younger days, I think I could get £100 a month to invest.

But I believe the key to building significant wealth is to reinvest any gains made from buying more stocks. This is known as integration.

So if I were starting my investing journey again, what would I hope to achieve in 40 years time?

Great harvest

In my opinion, the key is to find stocks that are likely to pay higher than average dividends over the long term.

Personally, I would focus on FTSE 100. This index includes the largest UK companies, which means that – in theory – their earnings (and therefore their return to shareholders) should be more reliable.

I have chosen three to show the potential benefits that can be produced.

Holy Trinity?

BP (LSE:BP) paid a dividend of 8 cents (6.14p) a share. This gives a current yield of 6.1%. In monetary terms, the oil giant's dividend is much lower than it used to be. But it was cut as part of its plans to make it more “strong“. For example, in 2019 it was paying at least 8p every three months. But this means that there is currently plenty of headroom if the price of oil or gas falls. During the second quarter of 2024, the group reported an operating cash flow of $8.1bn. No wonder its former manager described it as “literally a money machine“. Over the same period, its dividend was worth $2.6bn (32%). It is important to remember that the BP payment is declared in dollars so the actual amount received is influenced by the exchange rate.

National Grid aims to increase its profit in line with the Consumers Prices Index, which is currently 2.6%. For the year ended 31 March 2024 (FY24), it paid 58.52p. Increasing this in line with inflation would suggest a payout of 60p in FY25, equivalent to a current yield of 5.9%.

Despite the downturn in the housing market, Taylor Wimpey has managed to increase its profits during each of its last four financial years. This looks set to continue in 2024, in my view, a payout that looks likely to be 9.6p. If I am correct, this gives a current yield of 5.8%.

Doing math

The average of these three returns is 5.9%.

Investing a sum of £100 a month for 40 years, generating this amount, would grow to £194,781. Not a bad investment for £48,000. And remember, this does not mean financial growth. At this point, I used the dividend income of £11,297, instead of reinvesting it.

But profits are never guaranteed and stocks can fall in value, so nothing can be taken for granted. And I will have to do more research before deciding if I should buy any of these three stocks.

However, this theoretical exercise shows the potential benefits of starting early and taking a long-term view.