How much do I need to invest for £100 in weekly passive income?

Christopher Ruane considers how he could boost his passive income streams by buying dividend shares — and how much he might need to do it.

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.

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper

Image source: Getty Images

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.

People adopt a variety of approaches when it comes to earning passive income. My own preferred approach is putting money into shares that pay me dividends. That does not involve any work for me, I can start without a huge lump sum and I can benefit financially from the hard work of successful companies.

Here is how I would do that if I wanted to target an average weekly passive income of £100, or £5,200 a year.

Why dividend shares?

Shares are basically a tiny stake in a company. When a company makes profits, it can keep them to invest in growth, like Amazon does. But it might instead choose to distribute them among its shareholders.

That is a choice for the company, although financial performance also matters. After all, dividends cost money.

So such payouts are never guaranteed, even from companies that have paid them regularly in the past. But I think that by spreading my investments across a range of blue-chip companies with strong proven profitability and ongoing commercial potential, I ought to be able to build dividend income streams.

Choosing shares to buy

But how would I decide what shares to buy? A mistake some investors make is just to focus on yield.

Dividend yield is the annual dividend paid by a company as a percentage of its share price. So if I invest in shares with a dividend yield of 5%, I could hit my £100 weekly target by spending £104,000 on shares. At a 10% yield, I could get the same passive income by investing the lower but still substantial amount of £52,000.

Why is it a mistake to focus on yield alone? Shares are not like bank accounts or bonds, with a set interest rate that is paid fairly reliably in normal times.

A dividend can go up and down based on a business’s financial performance and priorities. So just because a share has a 10% yield today (like M&G does, for example) does not mean that the dividend will be maintained.

Sometimes it will be though. Indeed, I hold M&G in my own portfolio. The asset manager raised its annual dividend this month.

So what I look for is the quality of a business. Does it operate in a market I think will see strong demand for a long time? Does it have some sort of competitive advantage that can help it build customer loyalty even if its prices are not cheap? Is the company’s balance sheet healthy enough that it can use profits to fund dividends instead of servicing debt?

Hitting my passive income target

When investing in blue-chip FTSE 100 companies with strong commercial prospects, I think an average yield of around 5% is realistically achievable in today’s market.

If I earn that average yield, I would need to invest slightly more than £100,000 to hit my target. If I did not have that sort of money, I could drip feed money into a Stocks and Shares ISA gradually and build the funds up over time. That way, I would hopefully begin earning at least some passive income within months. Over the years I also ought to get closer to my target income.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. C Ruane has positions in M&g Plc. The Motley Fool UK has recommended Amazon.com. 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

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

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

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »