£17,365 in savings? Here’s how I’d invest that in dividend shares for long-term passive income

Interest rates might be higher than inflation, but Stephen Wright thinks the stock market is still the place to be for investors seeking passive income.

| More on:
Black father and two young daughters dancing at home

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.

For a long time, investors looking for passive income didn’t have much choice. Interest rates were below inflation, so the only way to avoid diminishing buying power was to buy dividend shares.

That isn’t the case any more – inflation has fallen to 3.2% and a 30-year government bond comes with a 4.6% yield. But I still think dividend stocks are a better choice for investors looking to generate extra cash.


According to money.co.uk, the mean average amount held in a UK savings account is £17,365. Investing that in a 30-year government bond could generate just under £800 per year in extra income.

That’s not bad, but I think it’s possible to do better. The big advantage dividend stocks have is that the amount a business pays out to its shareholders can grow over time. 

Over 30 years, this can make a big difference. For example, shares in Bunzl (LSE:BNZL) come with a 2.15% dividend yield, but the company has been increasing its dividend by 7% per year over the last decade.

If this continues, someone who invests £17,635 in Bunzl stock today could potentially receive £35,272 in passive income over the next 30 years. That’s much higher than the £23,964 being offered by the bond.

Long-term income

The advantage of stocks over bonds is that their dividends can increase. But they’re not guaranteed to grow at any particular rate and there’s a much higher chance of returns going down – or being stopped entirely.

That’s an inevitable risk when it comes to dividend shares, but there are some things investors can do to try and limit the danger. The most important is having a clear view of the company’s long-term prospects. 

Sticking with Bunzl, the company has increased its dividend steadily, but what about in future? One reason to be positive is that the firm has a number of acquisitions in the pipeline that should boost its revenue and profit.

Relying on this over the long term to keep growing the business could be risky as the firm’s increasing size makes opportunities harder to find. But there is another reason to think the dividend has room to increase.

Competitive advantage

Possibly the most important thing about Bunzl from an investment perspective is it has a clear advantage over its competitors. The company is in the business of distributing things like disposable tableware and carrier bags.

Customers want two main things from a distributor – speed and reliability. And the global scale of Bunzl’s operations allows it to provide both.

Operating on a large scale can have its disadvantages, though. One of the downsides to a large business is that it can be hard to focus on the specific needs of individual customers and react to them.

Bunzl, however, operates a decentralised model. This means that individual managers are able to see when customer needs change and react quickly to them without having to go through a central bureaucracy.

Dividend shares

Dividend shares are no longer the only game in town for investors seeking passive income. But I think they’re still the best choice. 

If I had £17,365 to invest, I’d be looking to buy stocks. And Bunzl is one of the names that would be on my list.

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl Plc. 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

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Analysts say this amazing FTSE 100 stock is a takeover target!

This FTSE 100 stock's one of the worst-performing companies on the index in 2024. So why might other companies want…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

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

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »