If I wanted to earn £100 a month from dividend shares, what should I do? – Motley Fool UK

Our writer’s approach to earning extra income involves investing in dividend shares. Here’s the lowdown on key steps he would take.
Image source: Getty Images
Work, work, work. Whether you enjoy working or not, the idea of spending loads more hours each week doing it often has limited appeal. But what does have appeal for many people including myself is the idea of earning a bit of extra money each month. That is why one of the passive income ideas I use is investing in dividend shares.
Imagine I had a certain target in mind for the passive income I wanted to try and earn each month doing that, for example, £100. Here are the steps I would take to aim for that by buying dividend shares, even if I had never invested in the stock market previously.
To earn dividends I would need to buy shares. But before I can do that, I need to do the housekeeping to be ready to trade.
So, for example, I would set up a share-dealing account or Stocks and Shares ISA. That way, once I have money and know what dividend shares I am looking to buy, I will be ready to act.
Different companies pay out dividends on their own schedule. Some pay only irregularly or not at all. Dividends are never guaranteed, after all.
So although I could target shares that typically paid out in specific months, I would find it easier to target an average of £100 per month across the year rather than the same amount each month. That would add up to £1,200 in the course of a year.
My prospective earnings from the shares depend on what is known as their dividend yield. That is basically the annual dividends I should receive as a percentage of the price I pay for the shares. If I invest in shares with an average yield of 5%, I will need to invest £24,000 to hit my target. If the average yield is twice that level at 10%, I will only need to invest half as much – £12,000.
So does that mean I should just go for the highest yielding shares?
Absolutely not, without more information! Purchasing a share is like buying a tiny sliver of a big company such as BP or Apple. The dividend yield in itself, which for those two companies is 3.9% and 0.6% respectively, tells me nothing about the business.
Following the thinking of billionaire investor Warren Buffett, I would adopt the mindset of an investor buying a little piece of a business. So I would look for a business area I felt I understood and where I expected to see strong customer demand in future. I would then try to find companies that had a competitive edge in that industry. I would also check whether they had high debt or other spending obligations that might deter them from using profits to pay dividends.
If such dividend shares were available to me at an attractive price, I could start building my income-generating portfolio.
Like dividends, though, company prospects are never guaranteed. So I would try to reduce my risk by diversifying across a range of dividend shares.

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.
C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. 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.
| Christopher Ruane
Rolls-Royce shares trade for pennies and shareholders have had a turbulent 2022. Christopher Ruane looks at the numbers — and…
Read more »
| Stephen Wright
Our author has just invested £6,500 adding Apple shares to his portfolio. But why does he think now is a…
Read more »
| Jabran Khan
Jabran Khan takes a closer look at what’s happening with this FTSE stock after its share price jumped up.
Read more »
| Yasmin Rufo
Dividend stocks are a great way of generating passive income, and Yasmin Rufo discusses two stocks with an impressively high…
Read more »
| Michael Hawkins
The markets are facing some significant economic headwinds. However, I believe some FTSE 100 stocks are well positioned to ride…
Read more »
| Christopher Ruane
Our writer could scoop up quite a few Woodbois shares for just one pound. Is that an opportunity he wants…
Read more »
| Harvey Jones
Investing in shares is a great way of building a passive income. So how much should I put away each…
Read more »
| Jon Smith
Jon Smith reviews the announcements from the Chancellor this morning and shares how he thinks it will help the stock…
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