I reckon £250 per month in passive income would make a nice contribution to my retirement plans. I think the best way to target such a sum is by investing in high-dividend shares.

Income from insurance shares can be a bit cyclical. But over the long term, it’s one of my favourite sectors for cash generation. Today, I’m taking a look to see what I’d need from Phoenix Group Holdings (LSE: PHNX) to hit my target.

Phoenix shares have had a volatile year. But after recent gains, we’re still looking at a forecast dividend yield of 8.5% for 2022. Forecasts suggest it could rise as high as 9% by 2024.

I’m not really convinced that will happen. In fact, I expect everything in the financial sector to come under pressure during the recession, which could easily last a couple of years. So against the hope of high dividends, I know I’m taking a risk buying insurance shares.

Illustration

My calculations here just provide an illustration of what I could achieve from a consistent 8.5% annual dividend yield. In reality, I expect some dividends to grow strongly in the coming years, and others to fall back.

My long-term income investments include a number of dividend stocks in different sectors, so I’m hopefully sufficiently diversified to cope with any changes.

To get a monthly income of £250 from Phoenix Group, I’d need to build up a stake of around 6,000 shares. That would cost me approximately £35,500 to buy all at once. And I don’t have it to hand right now. In fact, even if I did, I wouldn’t put that much into just one stock anyway.

Building a pot

While I’m in a net investment phase, my strategy is to put a little away each month. And when I have enough for an investment, it goes into one of my favourite dividend stocks.

By my estimates, if I put £250 per month into Phoenix Group Holdings, I could build up the required pot of 6,000 shares in around 8.5 years. Provided I reinvest all my dividends into more shares, that is. As plans go, it doesn’t seem at all unrealistic to me. And I think I could achieve it if I went for the one stock, without too much hardship.

Story continues

After that, I could just sit back and watch my £250 come rolling in every month. Well, actually, Phoenix Group pays its dividends twice per year, so I’d have to spread it out myself. But I’d say that’s a pleasant enough task to have to do.

Verdict

Will I actually buy Phoenix Group for my passive income portfolio? I alternate my investments between different stocks. I think that’s safer than focusing on building up a bigger holding in a single stock at a time.

My aim is to build up a portfolio of 10 or 12 different income stocks, and the insurance sector is definitely in there. I currently hold Aviva, so I’m exposed to the sector. But I think there’s room for another, and my next choice may well be Phoenix Group.

The post I’d buy 6,000 shares of this stock for £250 in monthly passive income appeared first on The Motley Fool UK.

More reading

Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer 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 diverse range of insights makes us better investors.

Motley Fool UK 2022