Making passive income from the stock market remains as popular as ever as we start 2024. Certain stocks are favoured by retail investors, with Tesco (LSE:TSCO) being a good example. So can I mash together both ideas and try to make a generous monthly amount of income from Tesco shares?
Starting with dividends
To begin with, Tesco does pay out dividends (phew). Not only this, but it has a good track record of paying out income to shareholders in the pat. In fact, it kept up the dividend throughout the pandemic, at a time when some large companies cut it completely.
Typically, the firm announced a dividend payment based on the full-year results released in April. This is then followed by an interim dividend in October.
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At the moment, the dividend yield is 3.68%. This compares to the FTSE 100 average yield of 3.89%. So when I consider Tesco purely as an income generator, it’s below average. However, making money from stocks doesn’t just come from dividends. Rather, I can also hope to benefit from share price appreciation.
Share price growth
When looking at the share price performance over the past year, Tesco definitely beats the FTSE 100. It’s up 20% over this time period. In comparison, the FTSE 100 is down 3.5%!
With a company like Tesco, it’s true that it operates in a mature market. This, coupled with the high competition, will make some concerned that the share price can’t rally over the long term.
I disagree, with the 35% gain over the past five years showing that it can do well over a broader time frame. If I ignore compounding, 35% over five years amounts to 7% per year. This can add to my gains because I can look to trim some of my profits over time and bank the cash.
Enjoying the income
If I assume a future share price appreciation of 7% per year, along with a dividend yield of 3.68%, I could have a total annual gain of over 10%. Granted, this is just a forecast. Dividends can rise or fall, as can the share price. This could mean that as a worst-case scenario, I might not make any money at all from buying this stock.
Let’s assume that I can invest £350 per month in Tesco shares. I’m going to assume that I reinvest my dividends and leave my money in the stock over time. After a decade, my pot could be worth £72,643. Using the current share price of 298p, I’d need to own 24,377 shares.
From there, if I just enjoy the future dividends, this could pay me £222 on average each month. Alternatively, I might decide to sell some of the stock to bank a larger upfront amount of profit.
On this basis, I’m considering adding Tesco shares to my portfolio and think investors should consider doing the same.
