How much do you need to invest in dividend stocks to earn £1,500 a year in passive income?
Image source: Getty Images
Times like these are when dividend stocks shine the most. While stock prices in the tech sector are flying everywhere, mainstream investors are quietly watching the cash flow.
Who cares if OpenAI’s spending commitments will disrupt the stock market? Isn’t it easy to just sit back and collect a steady income from businesses that keep making money?
AI predictions
The stock market of the last few years has been focused on artificial intelligence. Defense costs and weight-loss drugs get honorable mentions, but AI has always been a big focus for investors.
Right now, big tech companies seem to be in a race to see who can spend the most money in the shortest amount of time. Microsoft $100bn is expected to be spent this year as well Alphabets it aims to reach $185bn.
At today’s prices, that’s enough to buy Spotify. Twice.
CEOs are sure this will work. But if one of the biggest customers is OpenAI – a company that is losing money and intends to continue to do so – there is a risk.
Net income
The investment drive in AI will be very effective, or it will explode dramatically. And there are strong and honest voices on both sides of the argument.
Given this, investors may think that the best way to get good returns is to look at businesses that distribute their profits as dividends, rather than reinvesting most of them. And there are plenty available.
In some cases, there are stocks with a dividend yield of up to 7.5%. That means someone investing £20,000 can collect £1,500 a year in cash just by holding on to their shares.
A high dividend yield can often be a sign of danger. But spending $185bn on AI data centers in anticipation of future demand is hardly a risk-free venture.
Real estate investment trusts
Real estate investment trusts (REITs) are some of the most transparent stocks out there. To get a tax exemption, they are required by law to return 90% of their earnings to investors.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice.
Another example is this Supermarket Income REIT (LSE:SUPR), which owns a portfolio of – surprisingly – retail properties. The stock comes with a 7.5% dividend yield and there is plenty of stability going forward.
Tesco again J Sainsbury makes up more than half of the firm’s rent. The advantage is that they are less likely to happen, but the danger is that high concentration makes negotiating rent increases difficult.
Most of Supermarket Income REIT’s leases have more than a decade remaining and inflation-related increases should help protect returns. So I think long-term stable income is a possibility.
Diversity
One of the things that investors should not forget is that they should not get involved in any particular strategy. A diversified portfolio can often be more powerful than a concentrated one.
There is scope to participate in the growth potential of AI without significant exposure to inherent risks. And I think Supermarket Income REIT would be a great way to do this.
Share prices are volatile right now, as investors try to figure out what the effects of AI will be on corporate profits. But sharing assignments can be a great way to get around some of this.
