The importance of an extra $10,000 per year will vary depending on the individual, but there's little doubt that most people would be happy to have a little extra cash for a holiday or the home loan each year.
Where's my $10,000??
Well, first things first, investors need to get into a routine of saving money to invest in shares. If we assume that a portfolio of stocks could generate a 5% fully franked dividend payout, then an individual will need around $200,000 to generate an extra $10,000 per year. While that seems like a lot, an individual saving $1,000 per month ($250 per week) will take less than 12 years to reach $200,000 (assuming dividends are reinvested to that point).
Therefore, a 23-year-old will have enough by the age of 35 to take the family on a great trip once a year!
The Stocks!
Next, we need to find the stocks to fill our dividend portfolio in order to achieve a 5% return. I created a filter using my broker's or Google Finance's stock screener to find companies with a market capitalisation of over $100 million and a dividend yield over 4.8%. 4.8% was selected as I want to select companies that will grow dividends over time.
Here are the 10 stocks I would consider to deliver my $10,000 income:
- Westfield Group (ASX: WFD); $22.46 billion market cap, 4.8% dividend yield
- Insurance Australia Group Limited (ASX: IAG); $13.65 billion, 5.7%
- SP AusNet (ASX: SPN); $4.59 billion; 6%
- Coca-Cola Amatil Ltd (ASX: CCL); $7.18 billion; 5.2%
- STW Communications Group (ASX: SGN); $0.6 billion; 6%
- M2 Group Ltd (ASX: MTU); $1.14 billion; 5%
- FlexiGroup Limited (ASX: FXL); $1.2 billion; 4.8%
- National Australia Bank Ltd. (ASX: NAB); $78.5 billion; 6.1%
- Thorn Group Ltd (ASX: TGA); $0.4 billion; 5%
- Telstra Corporation Ltd (ASX: TLS); $73 billion; 5.2%
If anything…
This exercise has shown just how difficult it is to find quality companies yielding around 5%. The portfolio above would yield an average of 5.3%, however I would expect this to increase over time based on the companies selected.
