For many investors, the dream of living off dividends feels like the ultimate reward for patience and discipline. With the FTSE 100 packed full of high-yielding stocks, that dream might not be as far away as it seems. From British American Tobacco and Legal & General to Schroders and GSK, the index offers a wealth of dividend-paying giants that have built reputations for consistency and reliability.
The appeal of dividend shares is simple – they provide steady cash flow while offering potential for long-term capital growth. Some of the market’s most established names have maintained or even raised their payouts through recessions, pandemics and market turmoil.
British American Tobacco, for instance, has increased its dividend every year for more than two decades. Similarly, Legal & General remains a cornerstone for many income portfolios, backed by strong cash generation and a clear commitment to shareholder returns.
However, while it’s tempting to simply chase the highest yields, that strategy can backfire. High yields can sometimes signal financial stress or a falling share price. It’s often better to focus on quality businesses with sustainable payouts and a healthy balance sheet.
What to look for in dividend shares
One stock that stands out in this regard is LondonMetric Property (LSE: LMP). The real estate investment trust (REIT) offers a dividend yield of around 6.8%, which looks appealing in the current environment.
REITs are required to distribute 90% of their profits to shareholders as dividends, making them a natural choice for income seekers. That reliability however, comes with a trade-off – limited reinvestment potential, which can restrict share price growth.
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Over the past five years, LondonMetric’s share price has fallen about 21%, largely due to property market weakness and higher interest rates affecting valuations. However, recent rate cuts have offered some relief to the housing and commercial property sectors, hinting at potential recovery.
The firm has a solid balance sheet and sufficient dividend coverage and, impressively, it’s raised its payout every year since 2015.
That said, risks remain. If the property market falters again or borrowing costs rise unexpectedly, earnings could be squeezed. A downturn in tenant demand could also pressure rental income.
Still, for those focused purely on income, I think it’s a stock worth considering – especially given its dependable track record and attractive yield.
Calculating dividend returns
So how many dividend shares are needed to earn £10k a year in passive income? The number varies depending on the yields of the chosen stocks and their prices at the time. In reality, it’s less about share count and more about total portfolio size.
With an average yield of around 7%, an investor would need roughly £150,000 invested in dividend shares to generate that £10k target.
That might sound daunting, but consistency’s key. Saving £500 a month would take around 25 years to reach that amount. However, reinvesting dividends along the way harnesses the power of compounding, which could shorten that time to around 14 years (assuming the average yield held).
When it comes to building passive income, patience and discipline often matter more than chasing short-term returns. After all, the FTSE 100’s dividend stalwarts have shown time and again that steady growth can pay off handsomely over time.
