How do I plan for some passive income to help fund my retirement? I can think of nothing better than UK shares paying dividends.
Today, I have my eye on Tesco (LSE: TSCO), and its forecast yield of 4.5%. It’s not one of the biggest in the UK, but it looks set to grow year after year.
If I buy Tesco shares in my Stocks and Shares ISA, how much would I need to get me my planned £100 per month? That’s £1,200 per year. So based on that 4.5% yield, I’d need a pot of nearly £27,000. At today’s share price, it’s 10,000 shares.
The plan
But before I work out how to get there, there are a couple of things. First, the Tesco share price has been up and down like most in the past few years. Over five years, it’s down 10%, so there’s some risk there.
Now the Tesco dividend has been growing. But it’s dipped a few times in the past, and there will be the risk of cuts in the future.
Still, over the long term, I think Tesco could be one of our best income stocks. It’s in a key sector, and it’s the big cheese.
Yes, there will be some pain right now. With high inflation, high costs, and less spare cash for people to spend, all retail firms will feel some of the squeeze.
What if?
For now, I’ll use the current share price and yield for my sums. It’s just a ‘what if?’, to see what kind of thing might be possible. It’s not a prediction.
So what’s my first step? Well, it has to be to work out how I can buy the shares I’ll need. I don’t have the cash for them all at once. But I can set some aside each month in my ISA.
And when I have enough, I buy some shares and keep on going. Oh, and I invest my dividend cash each year in more shares.
How long?
With £100 per month, how long might it take? With a 4.5% return, I work it out at 16 years. That might seem like a long time, but it’s in reach of a lot of folk out there.
And if I can go for £200 each month, I could get it down to a bit less than 10 years.
So with £200 per month in Tesco shares, I could build a pot worth close to £27,000 in just a decade. And then I’d be set up with £100 per month for life.
Real life
Of course, I wouldn’t put all my money in Tesco. No, I would diversify as a key way to help keep risk down.
So I’d stash away my cash each month. Then when it’s time to buy, maybe go for Tesco the first time. And then next time, buy Barclays. That way, I could build up a diverse pot of shares, all paying me cash each year.
I don’t hold Tesco shares now. But they’re on my list of passive income shares to buy when I can.
This post was originally published on Motley Fool
