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

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. 

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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!

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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.