Dividend income’s a function of investment size and yield

We may equally ask how long is a piece of string. After all, different people each have their own idea about how much money they would target as an annual income.

But let’s say that someone aims to earn £39k a year. I use that figure because that is roughly the median gross annual income for full-time employees who have been in their jobs for at least a year, according to the most recent annual data from the Office of National Statistics.

Let’s further assume that the aim is to earn that amount a year purely from dividends, without drawing down any of the capital in the portfolio.

How big the portfolio needs to be to hit that annual passive income target will depend on what dividend yield is achieved. At the current FTSE 100 yield of 3.2%, it will take a portfolio of £1.2m. With a 5% yield, that number falls to £780k. At a 7% yield it would be down to (a still substantial) £557k.

Taking a long-term approach

I do think a 7% yield is achievable in today’s market. But to make things less stretching, I will use the 5% figure.

The £780k could be a lump sum in a share-dealing account for example.

Few people have such a large sum lying around though. So what would it take if starting from zero, putting £20k a year into a Stocks and Shares ISA, then compounding it at 5% annually? In that case, the £780k target would be hit after 23 years.

Yes, that is a long time. But if someone started at 35, for example, that would mean they could hit their goal to stop working at 58. That is close to a decade before the State Pension age.

Building the right portfolio

While I think compounding at 5% annually and, later, targetting a 5% dividend yield is realistic, that does not make it easy.

It is important to think carefully about how to diversify across different shares, which ones to buy and how to minimise the effect of fees and charges on investment returns.

One share I think investors should consider both for its growth and income prospects is meat processor Cranswick (LSE: CWK). That might seem odd. After all, it only yields 2%. However, over the past five years, the share price has grown 44%. So Cranswick has comfortably beaten my 5% compound annual growth target during that period.

Of course, past performance is not necessarily an indicator of what a share price may do in future. Dividends are also never guaranteed, despite Cranswicks’s decades-long streak of annual growth in its dividend per share.

One risk I see is allegations of poor conditions at its pig farms causing reputational damage. But with long industry expertise, economies of scale, relationships with many of the UK’s leading grocery chains and a proven business model, I am upbeat about the outlook for Cranswick.

The post How much does someone need to put in the stock market to retire and live off passive income? appeared first on The Motley Fool UK.

Say someone hits 40 and does not yet have a SIPP, but wants to aim to draw down passive income from a SIPP once they hit the state retirement age. How might they aim to do that?

Getting into a regular habit

Current rules mean a 40 year old today will hit the state pension age at 67. That may rise but that has not yet been confirmed, so I will stick to 67.

Now, £1,000 a month is £12,000 per year. Imagine that they are willing to take out 4% of their SIPP per year after 67, as passive income. For that they would need a SIPP worth £300k.

Now, from 55, they may have been able to draw down a quarter of the SIPP’s value free of tax. To keep things simple I am going to ignore that here and use £300k at 67 as the target.

Presume that, from 40 to 67, they can achieve a compound annual growth rate on the SIPP of 5%, from dividends and capital gains (minus capital losses). They can achieve that by contributing £450 per month to the SIPP during that period.

Getting back the tax you paid

One of the features of a SIPP is the tax relief on contributions.

That can be even more lucrative for a higher or additional rate taxpayer. But even for an ordinary taxpayer it can be quite a boost.

Thanks to the tax relief, they can put £360 per month into their SIPP and the government will top it up to £450.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Drawing the income

The tax relief is a positive, but one downside of a SIPP (versus, say, an ISA) is that after the drawdown allowance I mentioned above, other money taken out of it would be taxable.

So, the investor should be able to hit the target of £1,000 per month in passive income from 67 onwards as I laid out above, but note that that will be subject to any relevant taxes.

Looking to the long term

Still, I think from a standing start, for a 40-year-old to retire with a four-figure (pre-tax) monthly income for the cost of a few hundred pounds a month between now and then could be very attractive.

One share I think investors ought to consider for its long-term potential is Cranswick (LSE: CWK).

It sells for 19 times earnings, which I would ordinarily think is expensive for a food producer. But Cranswick is no ordinary food producer.

The company has grown its dividend per share annually for decades. The share price has moved up 49% over the past five years alone.

With its economies of scale, proven business model, deep relationships with UK retailers and sharp strategic focus, I think Cranswick has strong ongoing growth potential.

One risk I see is reputational. An exposé of conditions at a Cranswick piggery last year was shocking and could lead customers to seek alternative suppliers.

Hopefully though, the company will take its commitment to animal welfare seriously, in a way that helps not harms the business.

The post What would a 40-year-old need to put into an empty SIPP to target monthly passive income of £1,000? appeared first on The Motley Fool UK.

Now, past performance is not necessarily indicative of what may happen in future. But here is a trio of UK stocks I think could potentially grow their dividends regularly in years to come.

Phoenix Group

The insurer Phoenix Group (LSE: PHNX) isn’t a household name, though with its planned name change to Standard Life, that may change.

Well-informed investors are clued in about the company’s 7.6% dividend yield, the highest of any FTSE 100 firm apart from Legal & General.

Like Legal & General, Phoenix aims to grow its dividend per share annually. It has done so over the past few years.

The financial service business is focussed on savings and retirement. With around 12m customers, it is a very substantial company.

It’s also strongly cash generative, helping to underpin the dividend. Phoenix’s businesses benefit from economies of scale, long-term policies being in place, and proven investment nous.

One risk I see is a property downturn forcing Phoenix to write down the value of its mortgage book. On balance, though, I see it as a UK stock for investors to conider.

Cranswick

Another name that’s unlikely to trip off most people’s lips is Cranswick (LSE: CWK).

But while many people might be unfamiliar with the FTSE 250 food company, some of its products may well have passed their lips. Cranswick’s customer list includes swathes of the country’s retailers, who sell its products under their own names.

Demand’s likely to stay high: people need to eat and Cranswick has developed competitive pricing and economies of scale.

Economies of scale are not always positive, though. Allegations last year of cruelty at some of the company’s large pig farms brought a reputational risk. I was therefore pleased to see the company commission an independent review into how it treats its swine and act on it.

Cranswick has grown its dividend per share for 35 years in a row.

The dividend last year was covered more than twice over by diluted earnings per share. With strong business performance, I think it could keep growing.

But at 18 times earnings, the Cranswick share price is not tasty enough right now for me to add the 2%-yielder to my portfolio.

Dunelm

It has not been a good month for homewares retailer Dunelm (LSE: DNLM). Its share price has tumbled 15% since the turn of the year.

That leaves it 19% below where it stood five years ago. At today’s price, I think investors should now consider this UK stock.

The share price fall was due in part to a profit warning this month. There are risks that weak consumer spending could eat into demand for some of Dunelm’s product lines, hurting revenues and profits.

But I see this as a well-run business with a strong positioning in the market. It has proven its model through multiple economic cycles. I expect it can continue to generate significant cash flows.

The company’s special dividend has moved around. But its ordinary dividend per share has kept growing annually in recent years.

I see the business as strong enough to maintain that trend. The ordinary dividends alone currently offer a 4.7% yield.

The post 3 UK income stocks I think could keep growing their dividends appeared first on The Motley Fool UK.

2026 has begun strongly too, with both indices having again set new all-time highs since the start of the year.

So it might seem like an odd time to be fretting about the prospect of a stock market crash. But the reality is that the market can crash at any time, so it pays to be prepared.

Market timing can be tempting, but is very difficult

Will the stock market crash? All we can say with certainty is that it will, sooner or later – but nobody knows for sure when that will be.

It is impossible to time the market. However, less than a week into 2026 and we have already seen the heightened geopolitical risk of recent years rear its head again on the world stage. Meanwhile, the British economy generally and large parts of the US economy look fairly sluggish to me.

Add into that the strong gains seen in the stock market last year and there is the potential for a mismatch between the current market values of some companies and what their business prospects suggest they ought to be worth.

So while I am never a believer in trying to time the market, I do see conditions at the moment that could help trigger volatility in the market at some point, and perhaps even a full-on crash.

Taking the long-term view

In a sense though, that does not bother me as much as it may concern some short-term traders. I take a long-term approach to investing.

Part of such a long-term approach involves taking the rough with the smooth. If an investment timeframe is long enough, there is bound to be some turbulence along the way.

That need not matter, in my view, if an investor has patience and continues to believe in the long-term value of a specific company relative to its share price. In fact, a stock market crash could actually work to an investor’s advantage if it enables them to buy a share they want at what they see as an attractive price.

Getting ready for a crash

As an example, I like the Cranswick (LSE: CWK) business model. Meat products might not sound glamorous, but Cranswick proves it can be a lucrative business area.

The FTSE 250 company has grown its dividend per share annually for decades. Its deep customer relationships, extensive network of production sites and industry know-how all help give it a competitive edge.

And the Cranswick share price reflects those strengths, having moved up 36% over the past five years.

The share sells for 18 times earnings. But that price, I am not willing to invest.

The company faces risks, from supply chain inflation to the risk of reputational damage following a critical report on conditions at one of its pig farms last year. That ethical concern alone may put some investors off.

At the right price though, Cranswick is the sort of share I would happily own. For now, it is too expensive for my tastes, but it is on my watchlist, in case a future stock market crash makes the valuation more attractive.

The post The stock market could crash in 2026. Here’s my plan! appeared first on The Motley Fool UK.

Having learned by watching the stock market success of billionaires like Warren Buffett, I aim to buy shares in British companies that I would gladly own for years or even decades, as long as the investment case did not unexpectedly change along the way (as happened to Buffett some years ago when he owned Tesco shares).

Here are three UK shares I think investors should consider this December for their long-term potential.

Cranswick

Meat, sandwiches and supermarket snacks might not seem like the money-spinning stuff of investor dreams. In fact though, that basic business has propelled Cranwsick (LSE: CWK) to a 50% share price gain over the past five years alone.

Success in this business area has also allowed the firm to be one of the few UK shares to grow its dividend annually for decades.

As Cranswick has become more successful, that has reinforced its success. It has developed economies of scale, deepened relationships with large customers and grown its expertise. Those bode well for the future.

That formula could keep delivering. There is a risk from any reputational damage caused by the company’s meat-rearing methods though. Treating animals well could be important for the health not just of those creatures but of the business too.

M&G

While asset manager M&G (LSE: MNG) does not have Cranswick’s decades-long streak of annual dividend growth, the FTSE 100 asset manager does aim to raise its payout share each year.

Given that its dividend yield already stands at a juicy 7.4%, that could potentially be very lucrative for long-term investors.

As well as dividends, M&G has been rewarding in terms of share price growth too. The share has moved up 46% over the past five years.

Past performance is no guarantee of what may happen in future, of course. One risk I see is investors pulling more out of the company’s funds than they put in, hurting fee income.

Still, with its large, multinational client base and strong brand, I regard M&G as a share for investors to consider.

J Sainsbury

People will keep buying groceries year after year in coming decades, whether in shops or online.

That could be good news for J Sainsbury (LSE: SBRY). The grocer has proven its business model over many decades, but has not stood still. As well as a large network of shops, it has developed an extensive online shopping operation.

Over the past five years, the Sainsbury share price has increased by 46%. The grocer also offers a dividend yield of 4.6%, well above the 3.1% offered by the FTSE 100 index of leading UK shares.

The UK grocery market is highly competitive and I see that as a risk for Sainsbury. It lacks the market dominance of rival Tesco — but also the reputation for keen pricing of German discounters such as Aldi.

However, if Sainsbury can keep striking the right balance between delivering quality products and competitive pricing instore while also developing its digital business further, I think it could potentially do well for many years or perhaps decades to come.

The post 3 UK shares to consider for the long term appeared first on The Motley Fool UK.

Derwent London (LSE: DLN) is one of them, having lifted its annual payout for 31 years in a row now. We’re looking at a 4.9% forecast dividend yield for 2025.

A dividend like that, if it can keep on growing year after year, can be worth a lot more than the kind of headline big yield that’s here today, gone tomorrow.

Forecasters see it rising at least for the next few years too. The predicted 6.5% increase between 2024 and 2027 isn’t huge. But if it’s close to long-term inflation, it can add up.

Derwent London is a real-estate investment trust (REIT), specialising in London office properties. And that might help explain the share price fall of the last five years. High inflation coupled with low growth has made property investing less popular — especially the high-priced commercial sector.

But on the bright side, investment trusts can hold back excess cash in good years to even out dividend payments in poorer years. And that’s why I rate them highly for investors seeking regular income. The dividends can’t be guaranteed, so diversification is still essential, but it can help keep our personal cash flow steadier.

Despite the property risks, I do think income investors should consider adding Derwent London — or a similar investment trust or two — to their long-term portfolios.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Not just pig feed

Cranswick (LSE: CWK) has come a long way since making pig feed back in the 1970s. It’s since expanded to food manufacturing, retail food supplies, and various food services. And a look at the chart below shows how the share price has soared over the long term.

The history, however, suggests investors might have to handle a few down spells. They suffered quite a dip between mid-2021 and late 2022 — though those who hung on then enjoyed a strong bull run.

The company’s success has led to a 20-year record of annual dividend increases. The forecast dividend is around a modest 2%, so not going to provide the biggest income. But I do think Cranswick is a nice example of a nicely-balanced investment. Not many in the FTSE 250 can match those long-term total returns.

My main concern is there might not be much safety margin in the current valuation. The forward price-to-earnings (P/E) multiple stands at 18.2. That’s a slight premium to market averages, with not a lot of wiggle room in the event of a poor year — and Cranswick has had those.

Against that though, a company involved in multiple stages of food production and distribution also has a defensive nature during harder times.

Even if the dividend yield might not be a big one, it’s well covered by earnings. The 2024 dividend was covered 2.4 times, and forecasts have it staying around that level until at least 2028.

I reckon Cranswick is definitely worth considering for a long-term capital-building portfolio. And think about reinvesting the dividend cash.

The post These FTSE 250 stocks have some of the UK’s best long-term dividend growth records appeared first on The Motley Fool UK.

Always needed

3i Infrastructure (LSE: 3IN) owns stakes in European and North American businesses that operate and manage assets in areas such as energy and utilities, transportation and communications. The fact, demand for things such as water and waste management and telecom towers is about as steady as it gets, meaning the £3.2bn-cap can provide investors with a stable income stream.

Right now, the shares yield a forecast 3.8%. That’s more than an investor would get from simply buying a fund that tracks the UK’s mid-cap index.

Of course, operating in a defensive part of the market doesn’t mean those dividends are ever guaranteed. Arguably the biggest risks here are things that management has absolutely no control over, such as inflation, interest rates and commodity prices.

Capital gains have also been modest over the years. So those looking for a nice dollop of growth to accompany that income might wish to consider other stocks as part of a diversified portfolio.

Meaty dividends

Meat supplier Cranswick (LSE: CWK) might be worth looking at. It’s another firm that’s consistently hiked dividends year after year. But the business has also delivered stellar share price growth over a very long period. And that’s Fool UK’s preferred time horizon when it comes to judging the merits of an investment.

There have been wobbles along the way, to be sure. Between August 2021 and October 2022, the stock fell roughly 35% in value as higher costs squeezed margins. That sort of drop’s worth bearing in mind given the shares currently change hands at a not-exactly-cheap price-to-earnings (P/E) ratio of 19 and inflation’s climbing again.

One other thing to note here is that the dividend yield of 2% is on the low side. However, that income will still compound over time. And personally, I much prefer a company to be disciplined with its capital over one that is offering high-but-stagnant distributions, possibly due to poor trading. The latter tends to be cut eventually.

Strong growth

A final dividend growth stock that might be one to investigate further is Morgan Sindall (LSE: MGNS). Investors in the housing and construction services provider will have enjoyed substantial hikes in recent years (ignoring the pandemic-related anomaly that was 2020).

The forecast yield for FY25 stands at 3.3% — on par with the average in the FTSE 250. But note that this will fall in the event of the share price rising. Out of interest, the stock’s up 11% in 2025 — double that of the index.

The long-term rise in value has been even better. Those investing five years ago will now be looking at a capital gain of around 240%! That’s brilliant considering that Morgan Sindall’s also exposed to the macroeconomic uncertainties mentioned earlier.

Naturally, any delays or issues with contracts could cause a shift in sentiment. But the shares still don’t look excessively priced relative to the wider market (P/E of 14).

The post 3 FTSE 250 dividend growth stocks to consider for long-term passive income appeared first on The Motley Fool UK.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Exploring the possibilities

In 2025, the average retirement age is around 65. And assuming an investor intends to start enjoying retirement at this age, a 50-year-old today has 15 years to financially prepare.

When it comes to UK shares, the average long-term return investors have come to expect is around 6-8% a year for the more popular large-caps found in the FTSE 100. And investing at these rates with £500 a month for 15 years is sufficient to build a nest egg worth anywhere between £145,410 and £173,000. That’s almost double the total £90,000 in deposits that will have been made during the period.

While this sum of money is certainly nothing to scoff at, it’s hardly sufficient to live a luxurious lifestyle. After all, the estimated retirement income needed to support just a moderate lifestyle is £31,700 a year in 2025. And due to inflation, that number’s likely going to be higher come 2040.

Boosting performance

One of the easiest ways to ensure a larger nest egg is to simply contribute more. Doubling the monthly contributions to £1,000 is enough to boost a Stocks and Shares ISA to as high as £346,000. However, what if investors could also earn more than an 8% annualised return? By adopting a stock-picking strategy, that might be possible.

Investing exclusively in the best and brightest of businesses opens the door to amplified portfolio returns. And that’s something the shareholders of Cranswick (LSE:CWK) have experienced first-hand.

Through a combination of market leadership alongside consistent and strong financial execution, the food production enterprise has emerged as one of the best-performing companies in its industry. And in just the last 15 years, the stock’s gone on to deliver more than a 500% total return, averaging 12.8% on an annualised basis.

At this rate, a £500 monthly investment would have grown to £270,000, while a £1,000 monthly investment would now be worth £540,000. Needless to say, these are substantial differences compared to the results achieved by index funds.

Taking a step back

In 2025, Cranswick continues to be a compelling investment opportunity. Its latest trading update included a welcome upgrade to its medium-term targets with management now targeting underlying operating margins of 7.5%, up from 6%. And as the firm continues to become more cash generative, Cranswick’s still slowly expanding its market share through smart capital allocation.

With that in mind, it isn’t surprising to see overwhelming positive sentiment coming from institutional investors. However, while opinions are bullish, Cranswick still has its weak spots.

The firm operates in a highly regulated market with food safety requirements constantly in flux. Cranswick’s also highly dependent on UK retail customers, creating concentration risk. And it’s recent expansion into pet food through its 2022 acquisition of Grove Pet Foods, there are also strategic execution risks to consider.

Nevertheless, given its impressive track record, investors building retirement wealth in a Stocks and Shares ISA may want to take a closer look.

The post Just turned 50? At retirement, investing £500 a month in a Stocks and Shares ISA could be worth… appeared first on The Motley Fool UK.

Investors will be forced to adjust their view on the cost of taking on new debt and how this could negatively impact stocks with high debt levels. Here are two stocks I’ve identified that have minimal exposure and could therefore perform well.

Low debt enables capex spend

First up is Cranswick (LSE:CWK). The leading UK-based food producer specialises in providing poultry and convenience foods to supermarkets and related foodservice companies. Over the past year, the share price has jumped by 16%.

What interests me in this case is the low debt levels. In the latest full year, the company turned over £2.7bn, with net debt of just £178m. For perspective, net income for the year was £134m, meaning that if the management team wanted to, it could almost wipe out all of the debt via just the latest earnings.

The company’s strong earnings and low debt levels provide it with the flexibility to invest in automation, new product development, and capacity expansion without relying heavily on borrowing. Further, with borrowing costs likely to stay higher for longer, it can avoid having to budget for these interest costs to service new debt.

Interestingly, the latest results showed £138m being committed to capital projects, showing how the business is putting cash to work. Of course, there are risks. One is how sensitive the company is to changes in input cost inflation. If UK price levels continue to rise, it will quickly erode Cranswick’s profit margins.

Focused reduction on costs

Another option to consider is Kier Group (LSE:KIE). The share price is flat over the last year. The construction and infrastructure business has historically struggled with high debt. However, recent restructuring and asset sales have significantly reduced this.

The latest trading update for this month showed a “substantially improved average month-end net debt” figure of £49m. For perspective, this was £116.1m at the same time last year, and £232m the year before. The focus on reducing debt is already yielding benefits to the company.

Of course, lower interest costs going forward will further enhance cash flow. Given the nature of the business, Kier reported a high-quality year-end order book of £11bn. Notably, 88% of the full-year revenue has been secured. With debt low and revenue consistent, it should filter through to a higher profit. In turn, this should act to boost the share price.

One concern is that if interest rates stay high and the UK economy underperforms, new construction contracts might be cancelled or postponed.

But over the coming year, if I’m right about internet rates not falling much, investors could turn to Kier and away from highly indebted stocks. Therefore, it could be an idea for investors to consider now, alongside Cranswick.

The post 2 super-low-debt growth shares appeared first on The Motley Fool UK.

In fact, as he himself says, a lot of Buffett’s success has been built on consistently applying some pretty simple but effective principles.

Small, private investors with just a modest amount of spare cash can apply some of those Buffett principles themselves. Here are three.

Know what you’re doing

It sounds blindingly obvious, but if you put money into a business you do not understand, you are not investing. You are merely speculating.

Yet that is exactly what a lot of people do, putting their hard-earned cash into shares without understanding how the business in question even makes its money (if it does).

Buffett sticks to his circle of competence. He has spent huge quantities of time learning about industries and specific businesses so he is more likely to know what he is getting into when he buys a given share.

Reinvest the earnings

Buffett’s company Berkshire Hathaway is rolling in cash – to the tune of hundreds of billions of dollars. Yet, rather than pay a dividend, he is happy to let it up pile up awaiting some future use.

That is an example of what is known as compounding. Rather than see dividends as passive income to fund life’s little luxuries, Buffett aims to use them to speed up his wealth building.

Even on a small scale, a private investor can do the same with any dividends they earn.

Never ignore valuation

There are multiple reasons Buffett may decide not to buy a particular share. For example, he may not comfortably understand its business or may feel uneasy about its accounting practices.

But another reason is because the share price is too high. Many people think a great business makes a great investment. Buffett is a seasoned enough market participant to know that the two things are not necessarily the same. Even a great business can make a poor investment if they are overpriced.

I apply this approach. For example, one share I have been eyeing for years is food producer Cranswick (LSE: CWK).

It is not a household name but makes a lot of food products sold in supermarkets and grocery stores. Cranswick has honed a highly successful business in this rather unexciting-sounding field. It has grown its dividend per share annually for more than three decades.

Cranswick has developed an extensive network of food production sites and developed deep relationships with customers. It has honed a consistently profitable business model.

One risk I see is reputational damage. Cranswick has attracted negative headlines this year relating to the conditions at one of its pig farms. That could hurt customers’ enthusiasm for its products, and so damage its revenues.

At the right price, I would be happy to buy Cranswick shares. However, at 22 times earnings, the share price is higher than I am willing to pay. So for now, I will do what Buffett sometimes does for years with a share… watch and wait.

The post Invest like Warren Buffett? Here are 3 simple ways to do it appeared first on The Motley Fool UK.