How I could live off dividend income alone !

Dr James Fox explores whether it would could be possible to generate enough dividend income to live comfortably and stop working.

Posted by Dr. James Fox

Published 30 May, 2023

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.Read More

Like many investors, I receive dividend income from the stocks I own. In my case, dividend-paying stocks represent the core part of my portfolio. But just how much would I need to earn from dividends to live off this income alone? And would it be possible?

Let’s take a close look.

How could it work?

Well, I’d want to build a portfolio of dividend stocks that collectively pay me enough money to live from. Let’s say this is £30,000, but I appreciate this might not be possible in London.

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

And I’d want to be doing this within an ISA wrapper. That’s because any capital gains, dividends, or interest earned within the ISA portfolio is tax-free.

So, if I was earning £30,000 from dividends, I’d actually be taking home more money than someone on a £45,000 salary — including student loan repayments.

Of course, unless I picked specific stocks, I wouldn’t expect this income to be spread evenly across the year. At this moment, the majority of my portfolio’s income comes around April and May, shortly after the end of the financial year. So that’s something to bear in mind.

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.

What would it take?

Well, to earn £30,000, I’d need to have at least £375,000 invested in stocks. That’s because I believe the best dividend I can achieve is around 8%. This would involve investing in companies, like Legal & General, that don’t offer much in the way of share price gains.

But what if we don’t have £375,000? And let’s face it, the majority of us don’t.

Well, I’d need to build a portfolio over time. And I could do that using a compound returns strategy. This involves reinvesting my dividends and earning interest on my interest. It’s very much like a snowball effect. 

Naturally, there are several key variables here. The starting figure, the yield I can achieve, and the amount of money I contribute from my salary every month.

If I started with £10,000 and stocks yielding 8%, in theory I could reach £375,000 in 19 years. But this would require me to contribute £400 a month and increased this contribution by 5% annually throughout those 19 years.

And by contributing £400 a month, I’d fall way under the maximum annual ISA contribution of £20,000.

Compound returns isn’t a perfect science, and as with any investment, I could lose money. But it’s certainly safer than investing in growth stocks.

About the stocks

Of course, the above is great in theory, but I’d need to pick the right stocks. I’m looking for stocks with strong dividend yields, but I also need to be wary. Big dividend yields can be a warning sign, and the dividend coverage ratio is a good place to start.

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

REGIONAL REIT Ltd.

(“Regional REIT”, the “Group” or the “Company”)

Lettings Update

Regional REIT (LSE: RGL), the regional property specialist, is pleased to announce that it has secured seven new lettings and eight lease renewals across its portfolio since the trading update on 15 May 2025. The fifteen transactions deliver a total annual rental income of over £1.6m and represent a 6.32% increase above estimated rental values, demonstrating the impact of the Group’s active asset management strategy.

Stephen Inglis, Head of ESR Europe LSPIM Ltd., Asset Manager commented:

“This letting activity underscores the effectiveness of our capital expenditure strategy, securing rents above ERV. The lease renewals also announced today reflect the quality of our existing properties and strong relationships with our occupiers.

As demand continues to grow for sustainable, well-located and high-quality regional office space, and given the diminishing supply, Regional REIT is well-positioned to harness this momentum and deliver lasting value for shareholders, including the distribution of our attractive and fully covered dividend.”

The Snowball expects to earn income of 10k this financial year, which will be three years ahead of the written plan.

The fcast for next year will be £10,500.00 and the target yet to be decided.

I bought 4,545 shares in this FTSE 100 dividend gem in 2020. Here’s how much passive income I’ve had since…

I bought shares in this FTSE 100 financial giant in 2020 based on high passive income potential and major share price undervaluation. I’m very happy I did.

Posted by Simon Watkins

Published 24 June

LGEN

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.

I bought £10,000 of Legal & General (LSE: LGEN) shares in June 2020, principally for their passive income potential.

This is money made with little effort, most appositely in my view with dividends paid by shares. The only real work on my part is selecting the stocks in the first place and then monitoring their progress.

I had already built up a stake in the financial services giant over previous years, in increments of £5,000. However, given how well it had performed – and its forecast earnings at that point – I decided to double my holding.

After all, earnings are the key driver for any firm’s share price and dividends over time.

Looking back I am very happy with my decision.

How much dividend and other income have I made?

In Legal General’s case, my £10,000 bought me 4,545 shares at the 24 June 2020 opening price of £2.20.

Since then the firm has paid a total of 97.09p in dividends. This has given me £4,413 in dividends – a return of 44% over the five years.

In addition, I have made a profit on a rise in the share price too. This was not altogether unexpected, as I only buy stocks that look significantly undervalued to me.

The primary aim of this in my passive stocks is to minimise the risk that I lose dividend gains through share price losses. However, it also conversely increases the chance that I may make a profit on the share price as well.

This has been the case with Legal & General, which now trades at £2.52. It gives me an additional profit of £1,454 on the share price.

This, added to the dividends made, means a total profit of £5,867 over the five-year period – a near-60% return.

What’s the dividend income outlook?

A risk for Legal & General is the intense competition in its sector, which may squeeze its margins.

That said, consensus analysts’ estimates are that its earnings will grow a spectacular 27.9% a year to end-2027.

The forecasts are that the firm’s dividends will rise to 21.8p this year, 22.3p next year, and 22.6p in 2027. This would generate respective yields on the current share price of 8.7%, 8.9%, and 9%. The dividend for 2024 was 21.36p, giving the current yield of 8.5%.

If the shares averaged this 8.5% yield over the next 10 years, then my £10,000 would make £13,326 in dividends. And if it averaged the same over 20 years I would make £44,412.

This is based on me reinvesting the dividends into the stock – known as ‘compounding’. But I have to take into account that none of this is guaranteed.

What about the share price prospects?

Legal & General shares continue to look extremely undervalued to me.

More specifically, a discounted cash flow analysis shows they are 56%undervalued at their current £2.52.

Therefore, their fair value is technically £5.73.

Consequently, given its strong earnings prospects – and what this should mean for its share price and dividends — I will buy more of the shares very soon.

Dividend

Our dividend of 6.875p per Ordinary Share remains cash covered at 1.00x (2024: 1.06x). The level of cash cover is lower than the previous year, due in part to “cash drag”, referring to cash held over the year reducing the Fund’s level of investment income and less capitalised interest received.

The repayment of capitalised interest is an essential component of the Company’s cash cover. However, given that its timing is tied to the eventual repayment or sale of the Company’s assets, it is unevenly distributed over the life of the Company, which can result in fluctuations in the dividend cash cover. This also affected this year’s cash cover.

In addition, the share buybacks, while being accretive to NAV, free up less cash than cash generated by extending new loans.

The Board has also considered the ratio of dividends per share to earnings per share, which is 137% (2024: 105%). While a ratio of more than 100% is undesirable, it does not imply that the dividend is unsustainable, as the ratio is driven in part by unrealised mark-to-market adjustments in the carrying value of performing loans – this type of price adjustment does not affect the long-term income-generating ability of those loans. Moreover, the ratio does not reflect the NAV benefits of the share buyback, which creates capital value in an economic sense, but this is not captured in earnings per share.

Paying a stable, attractive and covered dividend is an important part of the Company’s value proposition to investors The Board believes that the current level can and will be maintained. However, the Board is mindful of the increased risk environment and the fact that interest rates are forecast to fall, and so will keep the level of dividend under review to ensure that it remains affordable and sustainable.

Real Estate Credit Investments Limited (the “Company”)

Ordinary Dividend for RECI LN (Ordinary shares)

Real Estate Credit Investments Limited announces today that it has declared a fourth interim dividend of 3.0 pence per Ordinary Share for the year ended 31 March 2025. The dividend is to be paid on 25 July 2025 to Ordinary Shareholders on the register at the close of business on 04 July 2025. The ex-dividend date is 03 July 2025.

https://theoakbloke.substack.com

SEIT. Sat it Sorted. FY25 results assessed.

This OB25 for 25 idea will continue to rerate during the rest of 2025, I believe. And beyond. For me this isn’t a trading opportunity, this is a buy and hold for the long term. In my opinion, but you of course make your own investment decisions.

I notice there is growing interest again from IIs like Blackrock that have taken a growing stake in SEIT. The Smart Money sold out giving us PIs a window of opportunity at silly prices.

I hope you saw it, swooped and now are sorted.

Regards

The Oak Bloke

Disclaimers:

This is not advice – make your own investment decisions.

Takeover frenzy: number of investment trusts shrinks by 17% in three years

Dan Coatsworth  Tuesday, June 24

A £175 million bid for Downing Renewables & Infrastructure represents the 10th investment trust to receive a takeover offer this year – and several more have been the target of bidding wars.

With so many trusts trading well below the underlying value of their portfolio, it’s feasible to suggest takeover action will continue for the rest of the year given the bargains on offer. Sustaining a rapid pace of takeovers would exacerbate a worrying trend that’s already in motion, namely the shrinking pool of investment trust opportunities on the market.

There were 279 trusts on the London market at the end of May 2025 compared to 337 names three years earlier, according to data from the Association of Investment Companies. That represents a 17% decline since May 2022. There are now fewer trusts on the market than 10 years ago, which is quite remarkable when you consider how they’re increasingly popular with retail investors.

Who has received takeover bids this year?

We’ve already had three times as many investment trust takeover bids this year than in the whole of 2024.

Investment trusts receiving takeover bids so far in 2025
Assura
BBGI Global Infrastructure
Care REIT
Downing Renewables & Infrastructure Trust
Fidelity Japan Trust
Harmony Energy Income Trust
Henderson European Trust
The PRS REIT
Urban Logistics
Warehouse REIT
Source: AJ Bell, company announcements

Fidelity has been on the giving and receiving ends of bids this year with two of the trusts it manages. Earlier this year Fidelity Japan Trust was targeted by sector peer AVI Japan Opportunity Trust but rejected the bid. The trust then said it would hold a beauty parade to take over running the company when the current manager retires later this year.

More recently, Fidelity European Trust moved on Henderson European Trust and proposed they would be better off together. It was pitched as a merger but in reality, this is a takeover. In February, Henderson European Trust launched a review of options for its future and has now concluded the tie-up with Fidelity is the best outcome for shareholders.

We’ve seen bidding wars for several trusts including Harmony Energy Income Trust where both Foresight and Drax tried to buy it.

The highest profile takeover situation

The biggest drama has been found with medical centre property owner Assura where two parties are still fighting for ownership. Private equity group KKR originally sniffed around the trust in conjunction with Universities Superannuation Scheme (USS), a pension scheme that already had a joint venture with the target. USS quickly went away and was replaced by Stonepeak as KKR’s bid partner.

A rival business called Primary Health Properties (PHP) wasn’t going to let a big opportunity disappear in a flash and it’s been counterbidding ever since. While KKR has offered more money than PHP, certain Assura investors would prefer the latter wins the bid as it would mean they still get investment exposure to the company as PHP has a listing in London.

Investors might benefit from the takeover premium to the market price but they also need to think about what they’re giving up in terms of future potential returns if that stock remained in their portfolio.

Why are takeovers happening?

The property and renewable energy sectors have been hotspots for investment trust takeovers this year. Both sectors had been out of favour – property because of higher interest rates and renewable energy thanks to a mixture of factors including investors losing appetite for all things green. Many stocks traded on large discounts to net asset value and that’s lured in bidders.

Takeovers are also being driven by various sub-scale investment trusts realising they either need to get bigger or admit defeat and return money to shareholders. For years the investment market has been full of sub-£200 million trusts that didn’t gain traction. Many investors, particularly institutional ones, won’t touch trusts below a certain size, so trust boards have now been forced to make hard decisions.

The step-up in activist investor activity has also put pressure on trust boards to either improve performance, narrow discounts to net asset value, or take trusts in a new strategic direction. US activist Saba was deemed a menace when it tried to drive widespread changes in the market six months ago. While its campaigns weren’t successful, they did provide a wake-up call for large parts of the investment trust industry.

This FTSE 250 investment trust’s yielding close to 13%! But can it last?

Our writer takes a look at a FTSE 250 stock that’s currently yielding nearly 13%. And he considers what this could mean for a long-term investor.

Posted by James Beard

Published 16 June

SEIT

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

SDCL Efficiency Income Trust (LSE:SEIT) is a FTSE 250 member that invests exclusively in the energy efficiency sector. It seeks to deliver cheaper, cleaner and more reliable solutions to commercial, industrial and public sector users. Its portfolio comprises everything from roof-top solar installers to providers of energy-efficient lighting.

For the year ended 31 March (FY25), it declared a dividend of 6.32p a share. This means the stock’s currently (16 June) yielding 12.8%. In cash terms, its FY25 payout is 14.9% higher than in FY21.

But some of its impressive yield has resulted from a significant fall in its share price. At 31 March 2021, the trust’s shares were changing hands for 112p. Today, one can be bought for 49p, that’s 56% lower.

If the share price was the same today as it was at the end of FY21, the stock would be yielding 5.6%. Although not as impressive, it’s still above the FTSE 250 average.

Buyer beware

But a high-yielding share needs to be examined closely. Before parting with my cash, I’d need to be satisfied that the share price decline is a temporary blip rather than an indicator of a more fundamental problem.

At the moment, the trust’s shares are trading at a 46% discount to its net asset value. And the situation appears to be getting worse. The average discount over the past 12 months has been 39%.

A variance is common for investment trusts, especially ones like SDCL that invest primarily in unlisted businesses. It’s difficult to determine accurate valuations when there’s no active market for a company’s shares. However, a 46% discount appears to be wider than most.

But I can’t find any obvious explanation as to why the trust’s shares appear so unloved, other than I think it’s fair to say that the sector as a whole has struggled with rising interest rates – most (including SDCL) have to borrow to fund their expansion.

However, sentiment could be about to turn.

Looking ahead

That’s because investment trusts are a great way of diversifying risk through one shareholding. And diversification’s important during periods of economic uncertainty, like the one we are currently experiencing.

SDCL has over 50 positions (spread across three continents) in companies operating in different sub-sectors of the energy efficiency industry.

And the switch away from fossil fuels and the greater emphasis on cleaner energy’s likely to help its portfolio. However, with relatively low energy prices at the moment, the transition may temporarily slow. But the trust appears to be operating in an industry that’s going to grow over the long term. Net zero’s here to stay.

The trust also has a “progressive” dividend policy which means it seeks to increase its payout every year. Since its IPO in 2018, this target’s been met. Although I see no obvious imminent threat, payouts are never guaranteed and this ambition could come under pressure if the trust’s underlying assets fail to perform as expected.

However, if I’m correct about it being in the right sector at the right time, then its share price could soon start to rise. And this means the stock’s yield is likely to fall. The near-13% return will then be a distant memory. But mindful of this, I think it’s a share that investors could consider adding to their long-term portfolios.

SEIT

A hold for the Snowball.