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I hope to take pleasure in a snug retirement by producing a six-figure second revenue from a portfolio of FTSE 100 dividend shares.
Now seems 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 development as soon as the worldwide financial system recovers and market sentiment rebounds.
I ramped up my technique a yr in the past, when the FTSE 100 was sliding to round 7,250. This appeared like a superb alternative to choose up cut price shares, after they have been out of favour and due to this fact low cost.
FTSE 100 worth
Immediately, with the FTSE 100 round 1,000 factors greater at 8,317, I’m glad I took the plunge.
I don’t anticipate massive dividend shares to shoot the lights out share-price-wise, however some have accomplished 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 embody dividends. On 14 Might, Taylor Wimpey despatched me £158.78. That’s on high of the £79.84 I received on 17 November. In order that’s £238.62 in whole.
I’m hoping it should proceed to ship a gentle stream of dividends that rise over time. I’m inspired by the truth that it has maintained payouts though greater 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 worth climbed, and the dividend got here via. The board just lately reported a promising first quarter, so fingers crossed. When the primary rate of interest lower lands, I believe its share worth might soar once more.
So how do I flip dividends of just some hundred kilos right into a £100k passive revenue, as steered 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 received £408.27 from wealth supervisor M&G on 9 Might.
I’ve reinvested each penny, which suggests I’m now holding extra of those firms’ shares. They are going to hopefully generate additional dividends in future. I’ll reinvest these too. And probably obtain much more dividends because of this. It’s vital 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 yr in an expansion of shares, and enhance that by 5% a yr to maintain up with inflation. If I matched the FTSE 100 long-term whole return of 6.9% a yr, after 30 years I’d have £1,732,766.
If my portfolio yielded 6% a yr, as my present one does, I’d get revenue of £103,966. Inflation means it will likely be price much less in actual phrases than in the present day, however it’s nonetheless a mighty return. Each time Taylor Wimpey and the remainder pay me a dividend, I’m a couple of hundred kilos nearer to my goal.