The Motley Fool

Forget buy-to-let! I’d buy FTSE 100 dividend stocks to make a million instead

Image source: Getty Images.

People tend to invest for income or capital growth over time. Ideally, you want to have both, but most of the time, certain investments lend themselves to one or the other. For example, some FTSE 100 stocks pay out large dividends. This is perfect for investors looking for income. Another favoured investment in recent years for income has been buy-to-let property. With a decent upfront investment, the income from either investment over time can really add up, even reaching the million pound mark.

Is making a million really possible from income investing? Yes absolutely. A large part of this stems from the size of your initial investment. The larger the initial amount, the quicker it’ll be to make the million. For example, if you invested £500,000 into FTSE 100 dividend stocks with an average yield of 7%, it would take you 29 years to make a million from the income alone. If you just wanted to get to a million including your initial investment, it would take around 14 years. So it isn’t possible overnight, but it’s definitely possible in your lifetime… although most of us don’t have £500,000 to invest upfront. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

FTSE 100 dividend stock advantages

But time and regular investing of smaller amounts can still reap rich rewards because of dividends. For example, with £1,000 invested every month at a 7% yield, you can grow it to a six-figure sum, including your initial investment, in less than seven years, and over a million in 30 years.

The biggest tick in the box for me with dividends is that you’re in complete control of the income. For example, you can mix up your investment into several different dividend-paying firms. You know the dividend yield before you invest, so you’ve got flexibility to decide the income level you’re happy with. 

By contrast, your initial investment (even if it’s as big as £500,000) will probably only buy you one buy-to-let property. You can’t be certain of the yield until you actually let it out. Once you’ve committed and bought the property, you aren’t easily able to change the yield. 

I also prefer dividend-paying stocks for income due to the liquidity aspect of the investment. For example, if one firm stops paying a dividend (due to the pandemic) then you’re free to sell the stock and buy another one. This can be done in a very short time period. Or if you’ve received your dividend and no longer want to hold the stock, you’re free to sell it immediately.

This liquidity aspect is not the same for buy-to-let properties. Houses can take months to sell, regardless of if you are receiving rental income or not. You can also incur some hefty selling fees with a property, which should be noted.

Caution needed

The one caveat I will add is that nothing is a guaranteed deal. Income-paying firms can fail, meaning you could lose your full investment. Dividends may be delayed/cut after you’ve bought into the firm. So make sure you’re buying stocks you’re happy to hold for the long run and those you’ve done your research on. Two good examples I like of FTSE 100 dividend stocks are written about here. If you’ve followed the above, you can start reaping the benefits of income generation. Give it a while and you could be the one with a million in your bank account!

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Jonathan Smith and The Motley Fool UK have 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.