With countless dividend stocks to choose from, it’s very easy to start earning a passive income in the stock market. And even in 2025, as UK shares reach record highs, there are still tasty-looking high-yield opportunities to exploit. But how much money does it really take to earn an extra £1,000 each month?
Let’s crunch the numbers.
Aiming for £1,000
To earn that extra grand while sleeping soundly, the amount of capital required ultimately depends on which stocks and shares an investor buys.
The most popular (and easiest) investing strategy that British investors use is low-cost FTSE 100 index funds. These provide broad diversification across Britain’s largest companies. And historically, it’s proven to be a relatively stable and reliable source of dividends.
Today, the index offers a yield of 3.12%. At this rate, if the target is £1,000 a month, or £12,000 a year, that would require a portfolio worth £384,615.
Obviously, that’s not pocket change. But by consistently investing a small lump sum each month, even modest investors can slowly build up to this target over time.
After all, the FTSE 100 has historically generated an average 8% total return each year. And investing just £500 each month at this rate would reach the £384,615 threshold in roughly 22 years when starting from scratch.
Accelerating the wealth-building process
Waiting around for just over two decades isn’t exactly a thrilling prospect. But the good news is, by taking on a bit more risk, this journey can be drastically shortened through stock-picking.
Take BP (LSE:BP.) as an example. The energy stock offers a far more impressive dividend yield of 5.57%. Already, that reduces the required portfolio size from around £385,000 to £215,440. And assuming the oil & gas enterprise matches the FTSE 100’s typical 4% capital gain (bringing the total return to 9.57%), a £500 monthly investment could meet the new target around seven years faster.
Are BP shares worth considering?
Over the last 12 months, BP shares have generated notably higher returns than the 9.57% used in the previous calculation. In fact, the stock is up closer to 16%.
This performance is being driven by a variety of factors, including:
- Expanding fossil fuel refining margins potentially unlocking $300m to $400m in additional profits.
- New growth potential from its newly signed $25bn megadeal in Iraq.
- A strategic pivot back to oil & gas assets.
When combined with other tailwinds, institutional analysts have begun upgrading their outlook for the business. Some are even predicting more double-digit returns in 2026.
However, like all investments, there are risks that must be considered carefully.
With a forward price-to-earnings ratio of 12.3, BP shares are the cheapest among its peers. But at the same time, the company also carries the largest amount of debt. For now, its leverage is manageable. But if oil & gas prices decide to take a tumble, the group’s generous dividends could be compromised alongside the current upward trajectory of its share price.
This commodity risk is a bit too high for my tastes. So, I’m not personally tempted to add BP shares to my passive income portfolio. But for investors who don’t mind potential price volatility and want to diversify into the energy sector, BP could be worth a closer look.
