In 2023, abrdn (LSE: ABDN) shares paid a total dividend of 14.6p. This gives a yield of 10.7% on the current price of £1.36. By comparison, the average FTSE 100 yield is just 3.6% and the FTSE 250’s is only 3.3%.
Moreover, the global investment management firm has paid the same 14.6p dividend in each of the past four years. And analysts project that it will pay the same again this year, next year, and the year after that.
I believe it’s worth considering, even though a risk here is that the firm’s ongoing reorganisation aimed at cutting costs and improving profit margins might stall for some reason.
How much passive income can this produce?
My main investment portfolio is focused on stocks that pay a high yield. This is because I want to maximise my passive income going forward. This is money made from minimal effort, as with dividends paid by shares.
My aim in doing this is to increasingly live off the income generated while continuing to reduce my working commitments. And abrdn remains one of my core passive income-generating stocks.
So, £9,000 (the amount with which I started investing 30 years ago) would today buy me 6,617 abrdn shares. In the first year on their 10.7% yield, I would make £963 in dividend payouts. Over 10 years on the same average yield this would rise to £9,630, and over 30 years to £28,890.
Turbocharging the returns
These dividend returns are better than can be made from a standard UK savings account. However, they pale into insignificance compared to what could be made through the process of ‘dividend compounding’.
This is where the dividends are used to buy more of the stock that paid them. It is a similar idea to leaving interest in a savings account to accrue over time.
Doing this would make me £17,114 in dividend payouts over 10 years instead of £9,630. And over 30 years on the same basis this would rise to £210,862 rather than £28,890.
With the initial £9,000 investment added, the abrdn holding would be worth £219,862 by that point.
This would pay me £23,525 a year in passive income by then, or £1,960 every month!
No existing savings? No problem
Many people still seem to think that making money investing in stocks requires a lot of money to begin with. This is just not the case. Simply not having that extra beer or a fancy coffee can set someone on the path to big passive income.
For example, £5 saved a day (£150 a month) and put into 10.7%-yielding abrdn shares would make £108 in the first year.
After 10 years of the same saving and the same yield, the holding would be generating £14,275 a year in dividends!
On the same twin criteria, the dividends would rise to £343,648 after 30 years via £54,000 in deposits over that period, with the rest being reinvested dividends.
The total holding would then be paying £36,770 each year in dividends, or £3,064 each month!
Assuming inflation over the period, the buying power of the money will be lower by then and of course, returns aren’t guaranteed because the dividend could be cut. However, it goes to show that big passive income can be generated even from a standing start!
