£15k in savings? I’d aim for £817k in dividend shares and £32k a year of passive income

Our Foolish writer Royston Wild has come up with a plan he thinks can generate a brilliant passive income in retirement. Here, he reveals all.

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I think now’s a great time to go shopping for UK dividend shares. The earlier I start my investing journey, the better chance I have of building a healthy nest egg for retirement. On top of this, the London Stock Exchange is packed with attractive, income-paying bargains right now.

Dividends are never, ever guaranteed. But I think I could make a healthy passive income north of £30,000 with the right investment strategy.

A solid plan

Let’s lay down a few rules to help me on my investing journey. We’ll say that:

  • I have £15,000 to invest with at the beginning
  • I have a monthly budget of £300 I can use to buy UK dividend shares
  • I reinvest any dividends I receive, boosting my wealth through the miracle of compounding
  • I plan to retire in 30 years, giving my retirement fund plenty of time to grow
  • I aim for average annual return of 9.25% (based on the combined long-term average for FTSE 100 and FTSE 250 shares)

Assuming I manage to hit all of those goals, I would have made a magnificent £816,713.40 at the end of this period.

If I then applied the 4% drawdown rule, I would enjoy a lucrative annual income of £32,668.54. This strategy would give me a passive income at this level for around three decades before my pot ran dry.

Strength in numbers

As I say, cash rewards from any stock are never a sure thing. Dividends from well-loved Dividend Aristocrats can be sharply cut, or axed entirely, according to company-or industry-specific factors, or the broader economic environment. This was perfectly illustrated during the depths of the Covid-19 pandemic.

But by building a diversified porfolio of dividend shares, I can reduce this risk and potentially grow significant wealth over the long term. I believe a sensible strategy is to own shares in a minimum of 10 different companies.

A top FTSE 100 share

One UK share I’ve actually bought to hit my investment goal is Ashtead Group (LSE:AHT). A combination of share price gains and dividend growth have enabled it to deliver market-beating returns in recent decades.

In fact, between 2004 and 2024, the company — which rents out heavy equipment across a variety of industries — delivered a total return above 35,000%. Perhaps unsurprisingly, this is the highest return of any current FTSE 100 share over the period.

Ashtead’s long record of annual dividend growth can be seen in the graphic below. This is thanks to its exceptional cash generation and highly successful, acquisition-based growth strategy.

Chart created with TradingView

The company could encounter near-term earnings trouble if conditions in its core US marketplace deteriorate. But from a long-term perspective, it still looks in good shape to deliver more impressive returns.

Ashtead has plenty of balance sheet flexibility to continue growing its operations. And themes like heavy infrastructure spending, supply chain onshoring, and a potential new housebuilding boom, look poised to significantly bolster demand for its services.

By buying strong FTSE 100 and FTSE 250 shares like this, I think I have a great chance of building handsome passive income for retirement.

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.

Royston Wild has positions in Ashtead Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.

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