I hope to take pleasure in a snug retirement by producing a six-figure second revenue from a portfolio of FTSE 100 dividend shares.

Now appears to be like like an excellent time to purchase them, as many are actually low cost whereas providing inflation-busting yields. With luck, I would even bag some capital progress as soon as the worldwide economic system recovers and market sentiment rebounds. 

I ramped up my technique a 12 months in the past, when the FTSE 100 was sliding to round 7,250. This appeared like an excellent alternative to choose up discount shares, after they had been out of favour and subsequently low cost.

FTSE 100 worth

At this time, with the FTSE 100 round 1,000 factors increased at 8,317, I’m glad I took the plunge.

I don’t anticipate huge dividend shares to shoot the lights out share-price-wise, however some have completed properly. My shares in housebuilder Taylor Wimpey (LSE: TW) are up 20.41%, since I began shopping for them final September. Over 12 months, they’re up 26.72%.

This determine doesn’t embody dividends. On 14 Might, Taylor Wimpey despatched me £158.78. That’s on prime of the £79.84 I acquired on 17 November. In order that’s £238.62 in whole.

I’m hoping it is going to proceed to ship a gentle stream of dividends that rise over time. I’m inspired by the truth that it has maintained payouts although increased mortgage charges have hit property completion and costs.

Taylor Wimpey’s pre-tax income fell 42.8% to £473.8m in 2023, with income down 20% to £3.5bn. However nonetheless the share price climbed, and the dividend got here by way of. The board just lately reported a promising first quarter, so fingers crossed. When the primary rate of interest lower lands, I believe its share price could leap once more.

So how do I flip dividends of only a few hundred kilos right into a £100k passive revenue, as prompt within the headline? It appears an enormous leap.

Advantages of reinvesting dividends

First, Taylor Wimpey isn’t the one firm sending common chunks of cash with out me having to do something aside from maintain its shares.

Final Wednesday, FTSE 100 insurer Phoenix Group Holdings despatched £137.24. The day earlier than that, Lloyds Banking Group paid me £172.09. On 15 Might, Simply Group handed me £36.55. I acquired £408.27 from wealth supervisor M&G on 9 Might.

I’ve reinvested each penny, which implies I’m now holding extra of those corporations’ shares. They are going to hopefully generate additional dividends in future. I’ll reinvest these too. And probably obtain much more dividends because of this. It’s essential to state that dividends aren’t assured. Nothing is when shopping for shares, however the potential rewards make the chance worthwhile.

Let’s say I make investments £10,000 a 12 months in an expansion of shares, and improve that by 5% a 12 months to maintain up with inflation. If I matched the FTSE 100 long-term whole return of 6.9% a 12 months, after 30 years I’d have £1,732,766.

If my portfolio yielded 6% a 12 months, as my present one does, I’d get revenue of £103,966. Inflation means will probably be price much less in actual phrases than at the moment, however it’s nonetheless a mighty return. Each time Taylor Wimpey and the remainder pay me a dividend, I’m just a few hundred kilos nearer to my goal.