It’s possible to make a million pounds by investing in top dividend stocks, provided I’m patient and stick with it. I don’t expect to do it in a single leap, say, by investing in the next Amazon or Tesla at an early stage. Instead, I plan to build my wealth little by little, then let it roll up to become something very big indeed.
I’m a big fan of dividend stocks. They’ve had a rough time since the pandemic, but the regular shareholder payments can help me make a million, provided I put them to work. I’ve just received the modest sum of £60.30, and that’s put me another small step closer to building sufficient money to retire.
That £60.30 is the latest dividend payment I received from an investment trust, Scottish Oriental Smaller Companies Trust. I didn’t have to do anything to generate it. The trust just sent it to me. As do most of the stocks, trackers and mutual funds I hold. My portfolio is mostly invested in UK shares, which pay some of the most generous dividends in the world.
I’m earning income from dividend stocks
I don’t expect £60.30 to turn into £1m all on its own. I’d have to live for 144 years for that to happen, assuming an average total return of 7% a year. At that point, I’d by 199 years old. And £1m probably wouldn’t be worth that much!
Happily, that £60.30 is just one of many (and a small one). Another fund I own, HSBC FTSE All-Share Index, pays me around £70 every month. I have a FTSE 100 tracker that pays about £600 a year. I reinvest all back into my portfolio and compound growth should turn them into something quite big one day.
Somebody with a £100,000 portfolio could get dividends totalling around £3,500 a year. After 30 years those payouts alone would top more than £350,000, if they grew at an average of 7% a year. My imaginary investor would also have their original £100,000 plus capital growth on top of that from rising share prices. They will also generate dividend income and capital growth on all their future contributions. That million looks achievable.
Roll up, roll up
All too often we think of dividends in terms of percentage yields, but I like to think of them in cash terms and I can really see how amazing they are. If I invest, say, £10,000 in FTSE 100 life company Phoenix Group Holdings, its current 6.75% yield should hand me £675 this year. I’ll get something similar next year as well. And the year after that.
The more dividend stocks I buy, the more payouts you’ll get. Sadly, many UK companies have suspended dividends during the pandemic, but plenty yield 6% or more, including these two.
I cherish each £60.30 you receive, or whatever the sum. It may not be worth a fortune today but, over time, all those little payments could turn into a million. That’s the joy of investing in dividend stocks.
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Harvey Jones has no position in any of the shares mentioned. 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.