How much money do I need to live off UK share dividends?

Here’s how I’m aiming to invest my way to a portfolio capable of generating a share dividend income big enough to live off.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

According to the Office for National Statistics (ONS), the average UK salary is running just below £30,000 a year.

I could comfortably live on that much money. So, getting it from share dividends would allow me to retire from paid work.

Passive income from share dividends

To me, dividends are one of the best sources of passive income. But how large would a share portfolio need to be to generate £30,000 in annual dividend payments?

One reasonable estimate comes from looking at the dividend yield of the FTSE 100 index. The London Stock Exchange states the current yield as near 3.5%. So, I could put my money in a tracker fund and harvest that income. The 3.5% yield would need to deliver a passive dividend income of £30,000 a year. And my calculations reveal it would take an investment worth almost £860,000 to achieve that.

However, the FTSE 100’s dividend yield isn’t a static figure. The companies in the index have been under pressure because of the pandemic. And historically the yield of the index has been higher. But, to be fair, it has been lower as well.

Yet a Footsie tracker fund isn’t the only investment that provides a dividend. Some individual company stocks have a higher yield. And I could create a portfolio using them. For example, energy company National Grid yields above 5%. And smoking products company British American Tobacco is above 8%.

But the size of a dividend paid by companies depends on the strength of the underlying business. Directors have the power to raise, lower, and eliminate shareholder dividends whenever they wish. And they often do. For example, we’ve seen a lot of stalled dividends during the pandemic.

Compounding gains

And on the other side of the discussion, businesses often aim to raise their dividends each year as well. Indeed, many companies operate a progressive dividend policy to reward shareholders when an underlying business is doing well.

Overall, though, I think the 3.5% estimate used in the above illustration is at least realistic and perhaps on the conservative side. So, it’s prudent for me to aim for a portfolio worth the £860k mentioned.

And I’m aiming to build up the value of my share portfolio to that level by investing new money every month into UK shares I’ve researched and chosen carefully. My focus is on the process of compounding gains. So, I aim to pick the shares of businesses with the potential to grow. And I reinvest all dividends and other cash gains along the way.

Of course, share prices and dividends can rise and fall. And sometimes even stocks I’ve chosen with care can lead to a losing investment if something goes wrong in the underlying business. Indeed, stocks carry risks as well as positive potential.

Nevertheless, I’m embracing the uncertainties with the goal of building my investment pot over time.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco and National Grid. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

This S&P 500 blue chip looks far too cheap to me at $183!

Our writer picks out one high-quality S&P 500 stock that is currently the cheapest among the 'Magnificent 7' group of…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Down 23% today! This one’s stinking out my Stocks and Shares ISA

Our writer's wondering what to do with a problem named Ashtead Technology (LON:AT.) in his Stocks and Shares ISA portfolio.

Read more »

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing Articles

Down over 20%, should I dump this FTSE 100 dividend stock?

Our writer has been loving the passive income this dividend stock has been throwing off. But does the big share…

Read more »

Businesswoman calculating finances in an office
Investing Articles

I’ve just bought this FTSE share…

Our writer explains the thought process that led to him buying this FTSE share. One that’s likely to do well…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Just over £5 now, easyJet’s share price looks cheap to me anywhere under £13.84

easyJet’s share price has dropped recently, which could mean the business is worth less than before. Conversely, it could mean…

Read more »

Trader on video call from his home office
Investing Articles

36% under ‘fair value’ and forecast annual earnings growth of 6%, should investors consider this FTSE 250 stock?  

This FTSE 250 firm is a leader in a growing sector and has secured several new sites to drive its…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

3 UK shares that have recently become takeover targets

Mark Hartley examines why these three UK shares have become takeover targets and could be bought out by rivals in…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

These 4 FTSE 100 stocks are currently yielding more than 8%!

Our writer believes there are plenty of passive income opportunities among FTSE 100 (INDEXFTSE:UKX) stocks. These are the top four…

Read more »