History shows that the stock market can produce some impressive long-term gains. But UK shares have also established a reputation for paying some generous dividends. Indeed, latest forecasts expect members of the FTSE 100 to pay £88bn to shareholders in 2026. The index as a whole is currently (10 April) yielding 2.8%.
With this in mind, how could someone aim for a four-figure monthly income stream?
Well, someone achieving this yield would need an investment pot of £535,714 to generate a monthly income of £1,250, equivalent to £15,000 a year.
One way of achieving this would be to invest £789 a month for 25 years at an annual growth rate of 6%.
However, as much as I remain a fan of many of the dividend shares on the UK’s premier index, I think there are plenty of other exciting opportunities on the second tier. At the moment, the FTSE 250’s yielding 3.9%.
And this marginally higher return makes a big difference. A fund of £384,615 could generate £1,250 a month. Using the same assumptions above, it would require a monthly investment of £566.
But dig a little deeper and it’s possible to find lots of FTSE 250 shares offering a better return than this. Indeed, there are 24 presently yielding 7% or more.
One of these is Supermarket Income REIT (LSE:SUPR). In fact, I have the stock in my ISA.
At the moment, it’s offering a return of 7.6%. To generate £1,250 a month in dividends, £197,368 of the REIT’s shares would be needed. At 6% over 25 years, a monthly investment of £291 would realise this.
Of course, it’s never a good idea to have just one stock in a portfolio.
Supermarket Income makes its money from buying large stores and then leasing them to grocery chains. It now has a portfolio worth £2bn. In common with all real estate investment trusts (REITs), it must return at least 90% of its annual rental profit to shareholders through dividends.
With such a high threshold for shareholder returns it’s easy to see why so many income investors like REITs.
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But dividends cannot be guaranteed. If earnings fall then payouts are likely to be cut or — worse – suspended. How could this happen? Well, if interest rates were to rise then Supermarket Income REIT would face higher borrowing costs.
