850 shares in this dividend giant could make me £1.1k in passive income

Jon Smith flags up one dividend stock for passive income that has outperformed its sector over the course of the past year.

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Thinking about what an extra £1.1k a year could do for me yields plenty of results. I know it’s different for everyone, but regardless of what we’d spend it on, having the cash available would feel great. To that end, here’s a dividend stock that has the potential to provide me with the passive income to make that daydream a reality.

Bucking the property lull

I’m talking about Morgan Sindall (LSE:MGNS). The group is involved in various parts of the property sector, ranging from construction and infrastructure through to post-completion property services.

Over the past year, the stock is up an impressive 29%. In contrast to some other more generic homebuilders, Morgan Sindall has performed better over the past couple of years despite the negative sentiment around the sector.

In my view, this is due to the breadth of operations that the group has. It isn’t just reliant on property prices to make money, or end users being able to get mortgages.

For example, instead of dealing with consumers, it deals directly with businesses via urban regeneration projects. It also receives money from the Government with regards to infrastructure initiatives. As a result, higher interest rates and the resulting impact on buyers haven’t been a complete disaster for the firm.

Looking over recent results

Despite the broader property market lull, the 2023 results showed that revenue grew by 14% year on year. It also detailed a secured order book of £8.9bn for the future, spread across different projects. This gives me confidence that the business can build on next year.

One risk is the thin operating profit margin. At 3.4%, it’s hardly a large buffer in case costs move higher this year. Such a small margin leave it open to quickly flipping from an operating profit to a loss.

Income generation

My focus here is the dividend payments. The business currently has a dividend yield of 5%. The total payments over the past year have added up to 114p, an increase from the previous 101p.

I’d have to buy 100 shares to be paid £114 in annual income the following year. Using the current share price, this would cost me £2,240.

Let’s assume that the dividend per share stays the same, as does the share price. What I could do is invest £224 a month to purchase 10 shares. If I kept this up for seven years, I’d have a pot that should then pay me out £1,139 in the following year.

At that stage, I’d own 850 shares of the business. Some might find that investing this amount each month in one stock too much. This depends on how much in total an investor can afford to set aside. However, I do get that the build-up of the investment here might take longer if someone only wanted to invest, say, £100 a month.

Ultimately, I think the dividend share is a good choice that I can use to help enhance my portfolio going forward. On that basis, I’m thinking about adding it to my pot shortly.

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.

Jon Smith has no position in any of the shares mentioned. 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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