Investing in the FTSE 100 is one way for people to generate a passive income that’s uncorrelated to their job. Granted, there’s work to be done in order to get it up and running in the first place.
But once the strategy is in place, it can yield results without much ongoing work. So just how can someone go about making four figures a month from this idea?
Factors to think about
The first requirement is money. No surprise there, but obviously someone needs to have some form of initial capital to get going. For some, selling a property or inheriting wealth could mean they have a lump sum of cash to inject right now. In that case, it could be possible to generate a second income almost overnight.
For many of us, investing smaller amounts more regularly is a better option. In this way, it not only eases cash flow issues but also gives flexibility to be able to pick new hot dividend stocks over the coming years. Of course, there’s a risk that future yields could be lower than today’s but, on balance, I think this is the more realistic option.
The portfolio would be built around high-yielding FTSE 100 companies. Even though the average index yield is only 3.06%, nine companies have yields below 1%. So by cutting these out, and aiming for a dozen stocks with higher yields, I think an average yield of 6% is achievable.
In this case, if someone had a lump sum of £265,200, it would be possible to hit the target goal of £1,547 very quickly. Alternatively, an investor could earmark £600 a month. In this case, just after year 19 the target could be achieved.
Hunting for inclusion
One example of a stock that could be considered as part of the plan is Land Securities Group (LSE:LAND). Over the past year the share price is unchanged, with a dividend yield of 6.57%.
It’s one of the UK’s largest real estate investment companies, managing and owning some of the country’s most valuable commercial properties. Famous assets include shopping centres such as Bluewater and Liverpool ONE, alongside premium office space in London’s West End and City districts.
The majority of Landsec’s earnings come from rental income, which makes it attractive for income investors. When occupiers sign leases, they provide a recurring stream of cash flow that supports both profits and dividends.
Occupancy across the portfolio has climbed to roughly 98% in the latest update, the highest level in around two decades. This bodes well for future dividends given that it’s supported by recurring rental income rather than one-off property sales. The company increased its total dividend again in the latest year, while management continues to guide toward further earnings growth through 2030.
That said, investors shouldn’t assume the business is risk-free. Property companies remain sensitive to interest rates because higher borrowing costs can pressure property valuations and increase financing expenses. Therefore, if inflation keeps rising in the UK and interest rates increase this year, it could hamper performance.
Even with that risk, I think it’s a good example that an investor could consider as part of this strategy.
Should you invest £5,000 in Land Securities Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Land Securities Group Plc made the list?
Jon Smith has no positions in the shares mentioned.
