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I have a problem at the moment. My goal is to build an annual return of £10,000 for long-term, consistent income but I’m short of cash to invest.
That got me thinking about setting aside a tenner each day to invest. By investing that money in a portfolio of FTSE 100 Dividends, how much money can I theoretically make from my retirement plans in a few decades?
Patience
Let’s keep my £10 a day plan simple and stick to weekdays. That would give me £50 a week to play with. I will also assume no share price gains (or losses, which are somewhat artificial and unguaranteed), and an annual 7% dividend payout and reinvested four times a year.
Starting at £0 on day one, my portfolio looks bleak. But hey, I have to start somewhere, right?
After one year, my guess gives me £2,712 in capital invested and a small £112 in annual dividends paid.
After five years of systematic investing, that portfolio would be worth £15,654 with £980 annual income. I don’t have much to show for my hard work and smart investing but there is a nest egg starting to form.
Let’s fast forward a bit. Let’s just say I’ve been at this for 15 years. I won’t be looking to retire yet, which is fortunate, because my hypothetical portfolio is worth £69,138 and I pay £4,565 in annual dividends.
So, when can I get £10,000 in trailing income? After 25 years that portfolio would be worth £176,189 and pay £11,742 in annual income. That’s enough for me to focus on securing that and building for a strong retirement in the future.
What stocks can help me achieve this?
Obviously, the above is a simplified scenario. However, there are a number of Footsie dividend stocks that are profitable in the region I’m talking about.
They combine HSBC, Rio Tinto again British World (LSE: BLND) paid dividends of 6.6%, 6.5% and 5.9%, respectively. Among those three, I think British Land is an interesting proposition.
The company has an occupancy rate of 97% and continues to be proactive in managing its portfolio. Asset disposal and acquisition on the agenda. With a pro forma loan-to-value ratio of 34.6% and £1.9bn in undrawn facilities and capital, I think the local company could be one to watch.
With strong outperformance relative to its MSCI benchmark and a healthy dividend yield, the real estate investment trust (REIT) could be one to watch.
Of course, some of its chosen sectors can be cyclical and impact quickly, such as retail parks, so it may not be one for me to rely on in my long-term passive plans.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice.
Finish it
My simplified example gives me hope for the future. By putting aside just £10 each day, investing well and enjoying a touch of luck, I think I can generate an income of £10,000 in the future.
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