How much do you need to invest in dividend shares to aim for a £1,000 monthly passive income?

Stephen Wright takes a look at the power of dividend shares to turn a small regular monthly investment into much bigger long-term returns.

Posted by Stephen Wright

Published 24 November

ABF

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A lot of so-called passive income strategies actually involve a lot of work, but dividend shares are a rare exception. They really are a way of earning money while you sleep.

The average long-term return from the FTSE 100 is around 6.8% a year. And this means the amount you need to invest to target a £1,000 monthly income might be less than you think.

How much do you need?

The biggest thing when trying to figure out how much is needed to target £12,000 a year is how long do you have? It’s a simple question, but the answer is hugely important.

To earn that amount next year, you’ll probably need to invest at least £184,615. And dividend tax means the amount is actually likely to be quite a bit higher than this.

For investors with more time though, the amount they need comes down. Another route involves investing £1,000 a month at 6.5% for 12 years.

That mean splashing out a total of £144,000. And another advantage is that – unless the rules change – you can do this in a Stocks and Shares ISA and not have to pay tax on dividends.

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.

In general, having more time is a big help. Looking even further ahead, the average FTSE 100 return is enough to turn £200 a month into something generating £12,000 a year after 30 years.

That’s a total of £72,000 invested. So someone looking for a £1,000 monthly passive income straight away has to find an extra £112,615 compared to someone with a 30-year time horizon !

Where to invest?

Whatever the strategy, earning durable income means finding quality shares to buy. And fortunately for investors, the UK stock market has a number of high-calibre names.

One example is Associated British Foods (LSE:ABF). A 3% dividend yield means investors will need some growth to reach a 6.5% annual return, but I think they have a decent chance.

The company’s main asset is Primark and it’s fair to say that the budget fashion retailer has faltered recently. In the UK, a tough backdrop caused like-for-like sales to fall 3.1% in its 2025 fiscal year.

That’s bad and this is an ongoing risk in a relatively saturated market. But things look much more positive in the US, where I think there’s a lot for scope for future growth. 

The US has suspended its de minimis exemption for goods coming from China and Hong Kong. And that should make it harder for online competitors like Shein and Temu.

I think that gives Primark a big opportunity. And while Associated British Foods has been talking about the possibility of separating Primark, I hope it doesn’t with what I see as a potential opportunity.

A hidden gem?

Right now, the only way to invest in Primark is by buying shares in Associated British Foods. And I think the US division’s potential is currently being overshadowed by the weak UK sales.

I think this is a reflection of the wider UK stock market. There are some really interesting opportunities for investors, but they aren’t always in plain sight — even in the FTSE 100.

ABF of no interest for the Snowball on several levels.