Here’s how much an investor would need to earn £1,164 of monthly passive income

Jon Smith details how owning a portfolio with a mix of growth and dividend shares can be the perfect recipe for potential passive income.

| More on:
Asian man looking concerned while studying paperwork at his desk in an office

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.

Passive income’s becoming increasingly focused on by some investors. I think this is partly due to ongoing concerns about the UK economy and job security. It also could be to do with the fact that we are an ageing country, so income into retirement’s on people’s mind. Whatever the case may be, using the stock market to build such a cash stream’s possible.

Different avenues to take

To make sizeable passive income from stocks, there are three main routes to go down. One is to buy growth stocks with the aim of getting large scale share price appreciation. Over time, the profits from the rising stock price can be trimmed, enabling an investor to bank a portion of the profits and using this as income.

A second option is to invest in dividend stocks. These typically pay out income via a dividend a couple of times a year. With a pot of several income shares, it’s possible to receive some cash each month. Of course, dividends aren’t guaranteed, so investors need to be careful in assuming that the current dividend payments will continue into perpetuity!

Finally, a strategy can be to merge the two together. In practical terms, this means having a mix of growth and income stocks in a portfolio. Then there’s flexibility to generate cash proceeds both from potential share price movements as well as dividend payments.

Income and growth

Some stocks could offer the best of both worlds for a potential investor to consider. For example, PayPoint (LSE:PAY). The UK-based company provides convenient payment and retail solutions, with most of us likely having used the service at a local shop or petrol station.

Over the past year, the stock’s rallied by 40%, with a dividend yield of 5.53%. In this sense, it could offer an investor both the growth element and also income. It’s not a new business, but has the scope for further expansion.

In the half-year results, it spoke about how the “strategic investments made in Yodel and obconnect strengthen two core areas of our business, enhancing future growth and opportunities in parcels and Open Banking”.

It’s true that there are many avenues the company could go down to grow further. With the business posting a half-year profit before tax of £23.1m, I don’t see the dividend under any immediate threat. However, one risk is that should the company want to fuel a future acquisition or expand in a new market, management might decide to retain the dividend for a period to help fund this.

Talking numbers

If an investor could put away £500 a month and obtain an average yield of 8% from the portfolio, the total size could increase over time. After 15 years, the pot could be worth £174.6k. This means that in the following year, even without adding any fresh money, it could generate an investor £1,164 each month, on average.

Of course, these numbers are by no means guaranteed. But it does highlight roughly the size of investment and the target return needed to try and make this strategy work.

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.

More on Investing For Beginners

Investing Articles

A top FTSE 100 share to consider for a Stocks and Shares ISA starter portfolio!

While not without risk, a lump sum in this FTSE 100 trust could prove a great way for Stocks and…

Read more »

Senior couple crossing the road on a city street. They are walking with shopping bags while Christmas shopping.
Investing Articles

Here’s how I’m trying to build a second income using a Stocks and Shares ISA

To target a second income from the stock market, it's surely best for us to look for high dividends, isn't…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how £320 could put a stock market beginner on the path to riches this February

Christopher Ruane explains how someone with a few hundred pounds and no stock market experience could start building a portfolio…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

I asked ChatGPT to build the perfect Stocks and Shares ISA – and here it is!

Harvey Jones called on artificial intelligence to help him decide where to invest this year's Stocks and Shares ISA allowance.…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Here’s what an investor needs in an ISA to earn £5,000 of passive income a month

The Stocks & Shares ISA is an incredible vehicle for building wealth and generating a tax-free income. Dr James Fox…

Read more »

UK money in a Jar on a background
Investing Articles

Here’s how a stock market beginner could start investing with £2 a day

Our writer illustrates how, even with just a couple of pounds a day to spare, a new investor could start…

Read more »

photo of Union Jack flags bunting in local street party
Investing Articles

How much would an investor need in UK shares to earn an £833 monthly passive income?

For any investors hoping to make a passive income, UK shares might be one path towards the goal. Let’s take…

Read more »

Hand is turning a dice and changes the direction of an arrow symbolizing that the value of an ETF (Exchange Traded Fund) is going up (or vice versa)
Investing For Beginners

2 brilliant thematic ETFs to consider for a Stocks and Shares ISA or SIPP in February

Looking for a high-growth ETF for a tax-efficient investment account such as a SIPP? Here are two high-quality products to…

Read more »