How I’d try to turn a £50k lump sum into £606 of passive income every month

Jon Smith talks through how he’d allocate his money in top dividend stocks to squeeze the most out of the passive income potential.

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Getting a lump cash sum doesn’t happen everyday. Yet from time to time, it does happen. It can be from an inheritance, selling an asset, a work or injury pay out… Whatever the reason, if I had a £50k lump sum, I feel I can put it to use to make the money work for me with passive income potential.

Getting my ducks in a row

As a full disclaimer, it might not be suitable for all investors to allocate £50k to the stock market. I’m assuming that in my position, I don’t have immediate bills to pay or a large mortgage to pay down. Rather, I can afford to put the money to work in the market and don’t mind not having instant access to the funds from day to day.

I’d aim to stagger buying shares over the course of several months. I want to have a balance between having the money invested (to obviously be eligible to pick up future dividend payments) but also to have spare money to take advantage of opportunities as they arise.

The second part is less of a problem, as I’ll be able to invest normally using money outside of the lump sum. Yet I still want to build a pot over several months instead of buying stocks worth £50k on a single day.

Over the course of six months, I’d like to have the full amount invested. The next focus turns to what yield I’d like to achieve. For example, the Bank of England base rate is 5.25%. The FTSE 100 average dividend yield is 3.58%. Based on these and a few other factors, I’d aim for a 6% yield.

A case in point

I believe this is a reasonable expectation when I consider ideas to include in the portfolio. For example, Land Securities (LSE:LAND). It’s a leading real estate company that owns and manages retail, office and mixed-use spaces across the UK.

The stock’s up a modest 3% over the past year, but my focus is more on the dividend yield, which currently sits at 6.12%. It’s been able to generate sustainable income thanks to the rental and lease payments from its tenants. Each quarter, it pays out a dividend to investors, meaning I’d be regularly receiving money. From there, I’d look to reinvest the funds and buy more Land Securities shares. This would allow compounding to take place, growing my pot at a faster pace.

A risk with a stock like this is that the share price in part reflects the value of the properties held in the portfolio. The property market has been on a rocky road the past couple of years. This means the share price has been under pressure. Should the UK economy underperform over the next year, the share price could fall.

Investment potential

If I include stocks like Land Securities, I feel I can build my £50k pot up over six months. From that point, if I achieve my average yield of 6% and top up the account with an extra £250 each month, my portfolio could grow fast.

After a decade, my pot could be worth £121.2k, which would mean for the following year it would pay me £606 a month.

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 recommended Land Securities Group 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.

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