The idea of ​​putting money into dividend stocks to earn passive income is a very venerable one.

One of the reasons it lasts so long is precisely because it can work well. Another advantage is adaptability: it can be adjusted to the amount of money a person has available.

Let me cover some basics to show you what this might look like in practice for someone planning on £750 a month.

Understanding the role of the dividend rate

£750 a month equals £9,000. pounds per year.

If someone wanted to earn interest on their bank account, they would check the interest rate to decide how much to invest.

The current Bank of England base rate is 3.75%. Currently, deposit accounts may offer less, but using the base rate as an example, PLN 9,000. pounds is 3.75% of 240 thousand. pounds. So someone who plans an interest rate of PLN 9,000. pounds per year at an interest rate of 3.75%, he would have to invest PLN 240,000. pounds.

In some respects, the dividend yield works similarly – but with some critical differences.

Current average FTSE100 profitability is 3%. However, I think in today’s market you can get to 6% by sticking with the largest companies. At a rate of return of 6%, passive income of PLN 9,000. pounds would require an investment of 150,000. pounds.

However, dividends are never guaranteed. Come to that, interest rates can change too.

It is currently unlikely that the funds in your bank account will be lost due to bank insolvency (in any case, the first £120,000 is usually covered by a compensation scheme). However, share prices may change in value.

This could have an adverse effect on the value of your portfolio if prices fall. But in my opinion it could also be a good thing because prices could go up.

So, in addition to passive income, a person investing in the stock market can also earn capital gain.

Mechanics of investing on the stock market

Before putting money into the stock market to generate passive income streams, an investor should become familiar with some of the key concepts involved. These include both the valuation of shares and the impact of fees and commissions on financial returns.

With this last point in mind, it’s worth choosing carefully when choosing a share trading account, stocks and shares ISA or trading app.

One income share to consider

One dividend stock that I think is worth considering for its passive income prospects is the company FTSE100 asset manager M&G (LSE:MNG).

The company has a goal of increasing its dividend per share every year – and in this week’s annual results, it did exactly that.

The current yield of 6.8% is well above the 6% target I mentioned above.

The dividend raise wasn’t the only good news in the results. One of the risks that has worried me about M&G in recent years is that investors are taking more out of its funds than they are putting into it.

However, last year the company saw a net inflow of £7.8 billion into its open business (“open” because some M&G funds are closed to novel funds). This is encouraging, although the risks still concern me, especially in volatile markets like the ones we are currently seeing.

M&G has a powerful brand and a immense client base, with assets under management and administration of £376 billion. This is a highly capital-generating solution that can aid maintain constant dividend growth.