Earning passive income from dividend shares seems like a simple concept: buy the highest-yielding stocks and sit back while the cash flows in, right? Not exactly. Without careful planning, it could all go awry.
Let’s look at one strategy that simplifies the more complex parts.
A simple plan
First, use a Stocks and Shares ISA. Dividends paid inside an ISA are tax-free, so you keep every penny. That’s a big advantage when you’re building a £5,000-a-year income stream.
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With yields between 6% and 7%, you’d need around £71,500-£83,300 invested. If your portfolio returns the historical UK market average of about 9% a year, getting there could take just over 10 years starting with £5,000 and adding £300 each month.
But what yields 6%-7%? One small, simple business I’d consider is MONY Group (LSE:MONY). It runs MoneySuperMarket and other comparison sites, along with services offering money-saving tips.
Its SuperSaveClub (SSC) membership scheme now has over 2.1m members, up from 1m a year earlier. That’s more than doubled in 12 months, showing strong customer traction. Members generate around 16% of group revenue and are expected to deliver higher lifetime value.
The dividend story looks sturdy: a moderate yield (6.3%), decent earnings coverage, a long payment record (19 years), and minimal debt with low overheads.
Latest FY2025 results support that:
- Profit after tax: £80.7m (up 1%).
- Revenue: £446.3m (up 2%).
- EBITDA: £145.1m (margin expanding to 33%).
- Operating costs: down 4%.
But is a solid dividend enough on its own?
What to look out for in dividend stocks
Chasing yield without checking the basics can backfire. A dividend that isn’t covered by earnings, or a company drowning in debt, can cut payouts quickly.
At MONY Group, net cash fell in 2025 to £4.1m from £8.4m. That’s still a net cash position, but the decline’s worth watching.
Some parts of the business struggled too. Travel revenue dropped 10% and cashback fell 13%, hit by weak consumer confidence and tighter retail marketing budgets.
For long-term investors, the question is whether these dips could hurt the dividend. Management says it’s balancing ordinary dividends with share buybacks while rebuilding cover. That’s reassuring, but it also means dividend growth may be modest rather than rapid.
Its revenues are sensitive to the UK consumer cycle, insurance pricing, digital ad inflation and regulatory shifts. Any changes in these areas can hurt profits. So what gives me confidence in the outlook?
Final thoughts
MONY Group’s just one example of what to look for when targeting passive income from dividends, but it shouldn’t be considered alone. Most invetors aim for a diverse mix of 10-20 stocks from various sectors.
I like that management expressed confidence in delivering 2026 adjusted EBITDA in line with analyst expectations of £142m-£153m, with a central estimate of £146m. To help achieve that, the group’s integrating AI tools to meet market demand and cut costs.
For income investors, the combination of a modestly growing ordinary dividend plus opportunistic buybacks is the key feature that makes MONY worth considering. It’s not a high-octane growth story, but it could be a steady building block in a dividend portfolio targeting £5,000 a year in income.
Should you invest £5,000 in Mony Group Plc right now?
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Mark Hartley owns shares in MONY Group.
