It’s very human to want to try to have certainty in our lives. This applies to many different aspects in life, one of which is income generation. If I can pursue an idea that could generate passive income for an extended period of time, I’d jump at it. Using dividend shares is one such way I think I can achieve this goal. Here’s how I’m working toward it!
Investing regularly
The key to making lifetime income in my opinion is to spend the coming years building for the future. Obviously, I want to enjoy the benefits as soon as possible. But if I can be patient and build up my investment pot, I can make use of the income later in life when I need it most (such as in retirement).
So to begin with, I want to take my £300 a month and invest it each month in top dividend stocks. Regular investment helps me in several ways. It eases the pressure on my finances, versus investing a large chunk in one go.
Further, investing each month allows me to benefit from market cycles. For example, this year the FTSE 100 has traded in a volatile 700 point range. Being able to buy when it has been closer to the bottom of the range will certainly help me lower my average purchasing price over time.
Finally, putting money away each month allows me to get a well diversified portfolio of dividend stocks. In coming years, different companies will emerge as hot income shares at the time. So being able to cherry pick my favourite firms at any point in time should help my portfolio to stay fresh and relevant.
Enjoying the passive income for life
My plan is to put the £300 each month to work in stocks that have an average yield of 6%. Some months the yield should be higher, other months lower.
This means that after the first year, my pot should generate me £216 of income. I’m going to assume that I’m happy to reinvest all my dividends. This helps to grow my money quicker.
My aim is to do this for nine years. At the end of this period, I’ll be earning £2,476 a year in dividends, just over £200 a month. I’m happy at this level, to be able to enjoy the proceeds from here, on whatever I want for life.
Risk involved
There’s a heavy caveat when I talk about income for life. Unfortunately, even if a company is currently paying a dividend, there’s no guarantee this will stay the same for my lifetime. Black swan events such as the pandemic could cause a business to cut the income payout.
Ultimately, I can’t escape this risk, but I can diversify my portfolio over time. Then, if one company does struggle, my income going forward shouldn’t be materially impacted.