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How to generate enough dividend income for a good holiday every year

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If you live in the colder parts of the country, you may be wishing winter to be over soon, perhaps you’re already planning a holiday. Why not use dividend income to pay for that trip?

People who are really on top of their finances may sometimes feel guilty about spending money on a holiday. Technically you could save that money, invest it and it might be worth five or ten times more by the time you retire.

But that shouldn’t mean that you don’t go on any holidays or do enjoyable things now either. Your life (and enjoying your money) doesn’t have to be split between retirement and now. You could decide to invest money now and use (some of) the investment income to fund fun activities.

How much do you need for a good holiday? I’ll let you decide that. But let’s say you’re aiming for at least $1,000.

You could say that you want to get those holidays underway as quickly as possible, so therefore you want high-yield options such as WAM Research Limited (ASX: WAX) and NAOS Small Cap Opportunities Company Ltd (ASX: NSC) which have grossed-up dividend yields of 9.8% and 9.9% respectively. With these, you would only just need a portfolio of just over $10,000 to get the income (before the effect of taxes owed to the ATO).

However, you may want to go for lower yielding dividend options that may provide more long-term capital growth such as WAM Microcap Limited (ASX: WMI), Duxton Water Ltd (ASX: D2O) and Future Generation Investment Company Ltd (ASX: FGX). A holiday portfolio of these businesses could mean that you may have to have around $20,000 to get $1,000 of income, but your holiday could get better and better every year.

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Returns As of 6th October 2020

Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO, FUTURE GEN FPO, NAO SMLCAP FPO, and WAM MICRO FPO. The Motley Fool Australia has recommended DUXTON FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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