The average salary in London is PLN 37,000. pounds. This equates to £2,377 per month after tax. Assuming I earn this amount but want to try to generate passive income, a good option I would consider is investing in dividend stocks. Interestingly, by targeting specific stocks, over time I can earn a very decent amount.

Finding the right crop

I’ll assume my monthly bills are £2,000, which gives me £377 a month to invest in the market. I plan to run this regularly. One benefit is that this way my money can accumulate faster rather than waiting and investing once a year.

I’m going to choose dividend stocks that have an above-average dividend yield. The FTSE100 the average yield is currently 3.64%, so that’s my benchmark to beat.

I try to get the most out of my money without being stupid. For example, Vodafon it has a dividend yield of 10.9%, one of the highest in the index. However, this will soon decline as another dividend has been cut. The yield will likely drop to 5.45%.

In terms of optimal yield levels, which I believe are sustainable, I aim for a range of 6% to 7%. Thanks to this, I also have a much wider selection of companies. Of course, extensive experience in fixed income does not guarantee this for the future. However, this is certainly a good indication that future dividends can be maintained.

Banking for more income

As an example of a stock in this sweet spot, I would consider buying shares of Investec (LSE:INVP). The FTSE250 The bank currently has a dividend yield of 6.32%. At the same time, the share price has increased by 19% over the last year.

The banking sector as a whole has benefited from rising interest rates over the past few years. This increased the net interest margin, which is the difference between the rate charged on loans and the amount paid on deposits.

Investec also has a robust corporate division, which he noted is very engaged and lively in helping to run the business that generates fees for the bank.

This helped augment both revenues and profits for Investec. The 2023 results showed the highest level of revenue in over five years. Thanks to the solid profit, a final dividend of 19p per share was announced, representing an 11.3% augment in the annual dividend compared to the previous year.

I think the business has good momentum going forward. There is a risk that interest rate cuts this year could reduce net interest margins. However, such cuts should support improve sentiment, potentially helping the corporate division perform even better.

Putting it all together

If I build a portfolio with an average return of 6.5% and invest £377 a month, my pot will grow quickly. This is not guaranteed and I may lose money. But after ten years, my portfolio could have been worth 64.2 thousand. pounds. Next year I could earn £347 a month just from dividends.