How I’d invest a £10K in an ISA to earn £60 a month passive income

As the banking crisis continues to unfold, I want to take advantage of it by charging high yields. FTSE 100 shares to generate regular passive income.

The index is full of the best dividend payers at the best time, so what makes today interesting? It’s all about results.

As stocks fall, yields rise

Yield is calculated by dividing the dividend per share by the share price. So if the stock price goes down, I get more passive income.

As the crisis progressed, stocks fell in the FTSE 100 and not just banking stocks. Most of them now give higher results as a result. Let’s take just one example, Legal and Public Group. Finally there is a yield of 7.41%. Today, I got 8.54%.

But L&G had nothing to do with the banking crisis. It’s not a bank. The FTSE 100 is full of companies in the same position. For example, I invested £10,000 in a tax-free Stocks and Shares ISA. I will not put everything into one stock, instead, I will split it between five different companies in five different sectors.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor does it become, any form of tax advice. Readers are responsible for doing their due diligence and obtaining professional advice before making any investment decisions.

Diversification will reduce the risk that one company fails, or a certain sector finds it difficult in the coming year. Banking, for example.

If I start by investing £2,000 of the £10,000 into L&G, a yield of 8.54% would give me an income of £170.80 per year.

I like homebuilders, as their stocks have sold off as investors flee from a potential house price crash. I suspect selling may have been overdone. Barratt’s Development yields 8.48% today. If I put away £2,000, I would have an income of £169.60 a year.

I was then able to diversify into the mining sector, by buying shares Anglo American, which currently yields 6.76%. My £2,000 share will generate an income of £135.20.

I would reinvest the dividends at first

Add to make cigarettes British American Tobacco, which yields 7.34%, will yield another £146.80. Buying a troubled telecom giant BT Group with the last £2,000 off it would give me £105 with a return of 5.25%.

As a general rule, higher yield equals higher risk. I should have explored all the stock options company accounts in more detail before parting with my money.

All five are available at a dirt-cheap price, which is both tempting and a warning signal. Stock prices don’t fall for no reason. If a company doesn’t generate the cash flow it needs to keep paying shareholders, it doesn’t matter how much it generates on the first day. Dividends can be cut at any time.

My £10,000 will generate a total income of £727.48 in the first year. That’s £60.61 a month. With a fair wind this will be rising earnings, as most FTSE 100 companies aim to increase their dividends over time.

I will reinvest all the dividends today and take them as passive income in retirement. Hopefully, the income will be higher then.