Even though job satisfaction is important, a lot of us work because we get paid to do so. I need a certain amount of income in order to pay my mortgage, other bills and to fund my personal spending. As an investor, UK dividend stocks provide me with an option to generate income as well. Through the dividends that are paid out, it’s technically possible for me to live off just the income I receive from these stocks. But how can I do this, and is it really viable?
Thinking through the numbers
In order to be in a position whereby I can live off the income from UK dividend stocks, I need to note several things. Firstly, most companies pay a dividend once or twice a year. Some companies pay it each quarter, but not every month. So I need to factor in buying a group of stocks in order to even-out the income I receive. Ideally I’d like to receive payments monthly.
The next element I need to consider is the size of the investment to generate enough income to live off. I’m going to make the assumption that I want to receive £30,000 a year gross. To keep things simple, I’m not going to go into the net figure. This is due to dividend allowances, differing rates of dividend taxation and other variables.
The second assumption I’m going to make is that my portfolio of UK dividend stocks will give me an average dividend yield of 6% a year. This seems reasonable in my opinion, but can be tweaked higher or lower depending on the stocks I buy (and of course, it’s not guaranteed).
As a result, I need to invest a lump sum of £500,000 in order to generate £30,000 a year in dividend income. So although it’s technically possible, I don’t have that kind of money lying around!
Alternative options using UK dividend stocks
This doesn’t have to be the end of the road though. There are some other ideas that I think make more sense to me.Â
If I want to build up to a level where the money I’m getting from UK dividend stocks equals £30,000, it can be done. In this case, I’d need to invest £1,500 a month for just over 16 years. During this period, I’ll reinvest the dividend income I receive. Then at year 17, I could look to just live off the income I get. If I invest less, it will take longer, but I could still get there in time for my retirement.
The other option is that I can use UK dividend stocks to generate a passive income to help support my main income stream. Receiving dividends from shares I own doesn’t require a huge amount of work. So I could settle for investing less in dividend stocks and allocating the rest into growth stocks for capital appreciation.
Whatever I choose to do, UK dividend stocks give me a lot of flexibility when trying to make passive income.