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tesco (LSE:TSCO) shares are popular with UK investors looking for dividend income.
The supermarket chain has an incredible brand, loyal customers and a leading market position that it has maintained for decades. This results in frequent trading and a reliable dividend, barring a few serious setbacks (more on this soon).
Personally, I think this is an investment I can rely on for income. Which makes me wonder how many Tesco shares I would need to stop working and survive on passive income.
How much is enough?
First, I need to define what quantity I will need. Of course, this can vary greatly, depending on whether I prefer to sit and read for hours like Warren Buffett or pamper myself at a luxurious spa resort.
Every person’s needs, wants and financial circumstances are different. So let’s go on average.
According to Statista, the average annual earnings of a full-time employee in the UK last year were £34,963.
How many Tesco shares do I need to buy to aim for this amount?
Well, the stock’s estimated dividend yield for fiscal 2025 (which includes most of this year) is 4.4%. This is based on today’s share price of 295p.
So this means I would have to invest a whopping £795,000 to acquire the required 269,491 shares.
Besides the possibility of having that much money, there would be tax implications (to put it mildly) if I were to spend that much at once on stocks for income.
However, that doesn’t mean my zero-work dream is over forever. Instead I can move in this direction by maximizing my annual tax-free Stocks and Shares ISA contributions. It is currently £20,000.
Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is neither intended nor does it constitute tax advice of any kind.
If I max out my ISA contributions every year, and achieve an average annual return of 9%, I’ll reach £795,000 in less than 17 years.
Well, if I let it grow for 20 years, I’ll have £1.1 million!
Now, 9% is the ballpark stock market average (with dividends reinvested) over the very long term. But that doesn’t mean it’s set in stone. I can get less (or more) than that.
diversity is important
Tesco has just reported a bumper Q3 which also includes the festive period. Like-for-like sales rose 6.8%, prompting it to upgrade its full-year operating profit forecast to £2.75 billion. The dividend seems safe.
Despite this, it is important to remember that no future payments are guaranteed. Just 10 years ago, Tesco was not paying any dividends because it was struggling with an accounting scandal. This is a phenomenon that can blindside any investor.
Therefore, it is important to create a flexible portfolio of different stocks. Fortunately, this will help me invest in other high-yield stocks.
For example, the insurance giant aviva Currently yielding a 7.4% dividend yield. global investment manager M&G Is yielding a whopping 9%. like tobacco stock Imperial Brands Offering meaty passive income potential. During this, VODAFONE Shares have a staggering yield of 11%. the list goes on.
With such a selection, it should be relatively simple to create a high-yield portfolio that pays more than Tesco’s forecast 4.4%. And this will be important for two main reasons.
Firstly, due to rising costs £34,963 won’t get me what I get today in 17 years. I can’t rely on just one stock to keep my income in line with the inflation rate. Second, a high-yield portfolio in which I reinvest the dividends will likely get me to my goal years earlier.
The post Here’s how many Tesco shares I’d need to quit my job and live on passive income appeared first on The Motley Fool UK.
Ben McPoland holds positions in Aviva plc. The Motley Fool UK recommends Imperial Brands PLC, M&G PLC, Tesco PLC and Vodafone Group Public. The views expressed on the companies mentioned in this article are those of the author 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 wide variety of insights can make us better investors.
Motley Fool UK 2024