How much would I need to invest in UK shares to achieve £500 of passive income per month?

There are various ways to earn passive income in the internet age. Affiliate marketing, dropshipping, and e-book sales are some of them. My preferred method is to invest in UK dividend stocks.

The income from these is truly passive because I don’t have to maintain a website or interact with customers. It simply appears in my investment account because I am a shareholder in the company.

I can use this to buy more shares (which is called dividend reinvestment or compounding) or simply treat it as passive income.

The last dividend I received was from an equipment rental giant Ashtray September 10. Several other British companies are also due to pay me a dividend this month:

	Dividend payment date
Games Workshop	September 16
London Stock Exchange Group	September 18
HSBC	September 27
Legal and general information (LSE: LGEN)	September 27
BlackRock World Mining Trust	September 30
Renewable Infrastructure Group	September 30

In this article, I will outline a practical plan that will help me achieve a passive income of £500 per month.

Mathematics

Most companies pay dividends two or four times (quarterly) a year. So I would aim for £6,000 a year to get an average of £500 a month.

How much I would need to invest to earn that amount would depend on the dividend yield of my portfolio. For example, if it was yielding 5%, I would need £120,000. For a portfolio yielding 7%, I would need £85,700. At 10%, it would be just £60,000.

The best thing about investing is that it is flexible. I can start small and eventually reach my income goal.

Tax-free passive income

I can currently earn tax-free returns (including dividend income) on £20,000 a year in a Stocks and Shares ISA. There has been talk of a “British ISA” that would raise this to £25,000, but this seems to have been rejected by the new government.

However, if I managed to max out the £20k limit, it would take me just over four years to generate £500 a month in passive income from a portfolio yielding 7%.

Of course, £20,000 a year – the equivalent of £1,666 a month – may not be achievable when I start. £10,000 a year – £833 a month – may be more realistic. In this scenario, it would take me just over eight years to achieve my goal.

I think it is entirely realistic to aim for a 7% dividend stock portfolio. But there is no guarantee that my ISA will reliably generate that amount. Withdrawals could be cut or even eliminated altogether.

As such, I would need to do my homework and focus on companies whose profits are not built on sand to give myself the best chance of success.

Please note that tax treatment depends on each client’s individual circumstances and may change in the future. The content of this article is provided for informational purposes only. It is not intended to, and does not, constitute tax advice of any kind. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Monster Performance

Returning to my September list above, I think Legal & General is a perfect example of a solid dividend stock. The financial services provider has a tempting 9.1% yield.

What’s more, it’s projected to grow to almost 10% by 2026! That would go a long way toward setting the stage for my 7% portfolio goal.

But what’s the catch? Well, there’s the risk that interest rates will remain higher for longer, putting pressure on customers and reducing profits and assets under management.

But I think that the monstrous profitability makes it worth taking the risk. The 188-year-old company has an excellent balance sheet, a strong brand and a large customer base.

Looking ahead, I also think investing in pensions and life insurance is not a bad idea, given the rapid aging of the global population.