Want extra income? I'd invest £1150 in this share today for £100 a year – Motley Fool UK

Our writer explains how putting money into shares helps him earn extra income ever year — with an example of one that is already in his portfolio.
Image source: Getty Images
The idea of earning money without the hard grind of work sounds great in theory. In practice, some ideas to involve extra income still involve a lot of work. That is why I like buying dividend shares. I can benefit from additional income streams without needing to work more hours each week.
Here is an example, which should earn me another £100 a year for zero work.
Dividends are basically the way a company distributes the profits it does not need to run the business. That cash pile is divided up among shareholders based on how many shares in the firm they own. The payment is known as a dividend.
The thing I like about this is that it can let me benefit from the hard work and business model of large, blue-chip companies. I get some of the profits without needing to do any work. But one thing I do not like is that dividends are never a certainty. Not all businesses pay them. A company that has been paying dividends can decide to them if profits fall, or even cancel them altogether. That is one reason I spread my portfolio of dividend shares across different companies. In investing terms, that is known as diversification.
Within a diversified portfolio, I would be happy to buy shares in a company I felt had a solid business model and attractive dividend prospects. Those prospects partly depend on what I pay for a share. The dividend per ordinary share received by different shareholders is the same. But if they bought their shares at different prices (for example because the purchases were not at the same time), the dividend as a percentage of the price paid will vary.
For example, if I paid £100 for a share that paid £3 per year in dividends, my annual income would be 3% of the purchase price. That is known as the share’s dividend yield. But if my neighbour paid only £50 for the same share, her yield would be 6%.
One company I like with an attractive dividend is M&G (LSE: MNG). I own it in my portfolio already. At the moment, the M&G dividend yield is 8.7%. That means that If I spent another £1,150 on M&G shares today, I would hopefully receive just over £100 in annual income for as long as I held the shares.
Things might turn out even better than that in practice. M&G has a policy of trying to maintain or grow its annual dividend. So the extra income I receive from it in future years may grow.
But as dividends are never certain, the future payout could turn out to be smaller too. I think M&G’s strong brand, large customer base, and deep experience in providing financial services are competitive strengths that could help it make profits in future. But there are risks too. For example, a recession could lead customers to withdraw funds, reducing M&G’s profits.
I am happy to hold M&G as part of a diversified portfolio to help reduce the potential impact of such risks to my extra income streams. Hopefully I can effortlessly benefit from M&G’s earnings for a long time to come!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
Christopher Ruane owns shares in M&G. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
| Kevin Godbold
Although messy, I think the stock market recovery is beginning and that’s why I’m now buying shares such as these.
Read more »
| Cliff D’Arcy
We recently bought these five cheap UK shares for their generous dividend yields. These cash payouts range from nearly 7%…
Read more »
| Royston Wild
The Scottish Mortgage share price has risen strongly in recent weeks. Should I pile into the FTSE 100 momentum stock…
Read more »
| Christopher Ruane
Is it worth waiting to start buying shares until one has more money to invest? Our writer doesn’t think so…
Read more »
| Royston Wild
I plan to hold on to my Diageo shares well into retirement. Here’s why I think it’s a top stock…
Read more »
| Christopher Ruane
Argo Blockchain shares have tumbled in value. As a shareholder, Christopher Ruane considers what might come next for the business…
Read more »
| Roland Head
These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…
Read more »
| Paul Summers
Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.
Read more »
View All
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
To make the world Smarter, Happier, And Richer
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show and premium investing services.
Read more about us >

We have taken reasonable steps to ensure that any information provided by The Motley Fool Ltd, is accurate at the time of publishing. Any opinions expressed are the opinions of the authors only. The content provided has not taken into account the particular circumstances of any specific individual or group of individuals and does not constitute personal advice or a personal recommendation. No content should be relied upon as constituting personal advice or a personal recommendation, when making your decisions. If you require any personal advice or recommendations, please speak to an independent qualified financial adviser. No liability is accepted by the author, The Motley Fool Ltd or Richdale Brokers and Financial Services Ltd for any loss or detriment experienced by any individual from any decision, whether consequent to, or in any way related to the content provided by The Motley Fool Ltd; the provision of which is an unregulated activity.
The value of stocks, shares and any dividend income may fall as well as rise and is not guaranteed, so you may get back less than you invested. You should not invest any money you cannot afford to lose, and you should not rely on any dividend income to meet your living expenses. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, administrative costs, withholding taxes and different accounting and reporting standards. They may have other tax implications, and may not provide the same, or any, regulatory protection. Exchange rate charges may adversely affect the value of shares in sterling terms, and you could lose money in sterling even if the stock price rises in the currency of origin. Any performance statistics that do not adjust for exchange rate changes are likely to result in an inaccurate portrayal of real returns for sterling-based investors.
Fool and The Motley Fool are trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the Financial Conduct Authority (FRN: 422737). In this capacity we are permitted to act as a credit-broker, not a lender, for consumer credit products. We may also publish information, opinion and commentary about consumer credit products, loans, mortgages, insurance, savings and investment products and services, including those of our affiliate partners. We do not provide personal advice and we will not arrange any products on your behalf. Should you require personal advice, you should speak to an independent, qualified financial adviser.
The Motley Fool Ltd. Registered Office: 5 New Street Square, London EC4A 3TW. | Registered in England & Wales. Company No: 3736872. VAT Number: 188035783.
© 1998 – 2022 The Motley Fool. All rights reserved. The Motley Fool, Fool, and the Fool logo are registered trademarks of The Motley Fool Holdings Inc.

source

Leave a Comment