Today, I want to look at five FTSE 100 dividend shares I’d buy now to target a passive income of £500 per month.
I’ll also explain how much cash I think I’d need to invest to hit this monthly target.
A safe 8% yield
My first pick is pension and insurance group Legal & General. This is one of the largest financial groups in the UK, with £1.3 trillion of assets under management.
Legal & General has a long track record of above-average profitability and good cash generation. This allows the company to support a generous dividend.
My main worry is L&G’s size and complexity. I can’t really analyse it closely myself. However, the group’s 186-year history gives me confidence that it’s likely to continue to prosper.
After recent falls, L&G shares offer a forecast yield of 8.3%. So this chunky payout looks pretty safe to me.
A cheap consumer stock
Tobacco stock Imperial Brands has risen by more than 30% this year, making it one of the top 10 risers in the FTSE 100. But with a 6.8% dividend yield on offer, I think this sin stock still offers good value.
The ethical and regulatory risks relating to tobacco products mean this investment won’t appeal to everyone. However, Imperial’s performance has improved significantly since chief executive Stefan Bomhard took over in 2020. I think the dividend looks well supported by the company’s earnings and free cash flow.
What else would I buy?
The three other dividend stocks I’ve chosen all offer a yield of around 7%.
Commercial property REIT Land Securities offers a forecast yield of 6.8% and currently trades at a 50% discount to its book value. This partly reflects the risk of falling property prices and rising borrowing costs.
However, Landsec’s accounts look solid enough to me. I think the company’s focus on high-quality London property should protect it from major problems.
I’d also be happy to put some cash into telecoms operator Vodafone. As one of the largest mobile operators in Europe and Africa, this FTSE 100 stalwart generates plenty of cash.
The risk is that Vodafone has to spend a lot too, in order to keep its networks upgraded. Profitability has been disappointing in the past, but is starting to improve. I think Vodafone’s 7.9% yield could be a sensible choice.
Last, but not least, utility giant National Grid looks good to me at under 1,000p. This gives the stock a near-6% yield, with the potential for steady dividend growth.
Profits could come under pressure as National Grid invests in upgrading the UK grid. But its dividend hasn’t been cut for more than 20 years. I think it will remain safe.
How much do I invest for a £500 income?
These five stocks have an average forecast dividend yield of 7.1%. If I invested an equal amount in each one, I’d need about £85,000 to generate an income of £500 per month, or £6,000 per year.
In reality, I can’t invest that much all at once. I’d also probably choose a larger number of stocks to improve diversification. It’s important to remember that dividends are never guaranteed.
The approach I’d take would be to gradually buy shares like these for my portfolio, building my passive income in stages.