Recurrent income is the passive money I receive over a long period. I can try to get this from various forms of investment, including dividend stocks. In order to try and generate income on a timely basis throughout the year, I need to be smart in my planning. Here’s one way I believe I can make it work.
Thinking about payment timing
Part of my focus is buying stocks that pay out quarterly dividends. There’s no set rule on how often a firm can pay out money to shareholders. In fact, one of the risks with dividend investing is that a company might cut the pay out completely.
Yet as a general rule of thumb, a company will pay out between once a year and once a quarter. This doesn’t mean that I get paid four times as much if I invest in the firm that pays out each quarter. It should tally to the same amount as if the same business decided to just pay out once in a year.
But for my recurrent income prospects, if I can have a diversified selection of stocks that pay out each quarter, I should be able to get to the stage where I’m getting paid money each month.
Both BP (4.71%) and British American Tobacco (9.74%) are good examples of stocks that pay quarterly dividends. The current dividend yield is in brackets.
Dependable companies
The other element that’s key is ensuring I’m buying stocks with a good track record of paying dividends. I can’t realistically expect to bank on a passive stream of money if the stocks I own have a terrible record.
This also includes companies that are only just starting to pay out a dividend. For example, there’s a lot of expectation that Rolls-Royce will likely start to pay out a dividend over the coming year. Yet I still wouldn’t feel comfortable in buying the stock purely for this potential. It’s too risky.
On the other hand, I’d look to buy stocks like United Utilities (4.49%) and Severn Trent (4.32%). Both have at least seven years of consecutive dividend growth. It gives me confidence that if I add these to my portfolio, I should be able to benefit from continued payments going forward.
Getting the numbers right
By getting a mix of stocks that have a good track record, along with others that pay out frequent income, I can hope to build a diversified portfolio.
Let’s assume that I invest £100 each month in each of the four stocks. With a blended average dividend yield of 5.81%, my pot will quickly start to grow in value.
If I reinvest the proceeds for the next decade, my portfolio could rise to a value of £62,132. From that point onwards, I could expect to receive £3,106 each year in dividend income.
Granted, there are risks with trying to predict this far into the future. But it shows that with a well-thought-out strategy, it’s possible to earn good income.
