I’d invest £12,850 in these dividend shares to target £1,000 in annual income

Owning stocks that regularly pay dividends can be a great way to earn extra income without having to work. If I wanted to try and generate £1,000 in annual income from dividend stocks by investing less than £13,000 today, here’s how I could do it.

Blue-chip focus

Some investors try to find high yielding dividend stocks in an effort to increase the amount they receive in dividends.

I like to own high yielding stocks, but subject to the caveat that yield itself is not a reason to choose certain dividend stocks. I’m trying to find a big business that sells it at an attractive price. If they also have a high dividend yield, all the better for passive income streams!

Four FTSE 100 stocks I would buy

Now, I consider some of the blue chip FTSE 100 stocks that provide strong businesses at attractive prices – with big dividends to boot.

One of them is British American Tobacco. The price has drifted down lately, meaning the Lucky Strike current owner yields 7.9%. Declining cigarette sales are a threat to revenue and profit, but the company remains a cash-generating machine and is rapidly expanding its non-tobacco business.

In the financial services sector, I like to use my current spare cash to make purchases Legal & General. The insurance and pensions specialist has a strong brand and a large customer base. The stock returned 8.1%. I will also top up holding from M&G. Asset managers have millions of customers and an established reputation. The stock returned 10.2%.

Both companies could see their profits hurt if clients withdraw their funds due to poor performance in a shaky market.

I also like the idea of ​​5.1%-yielding papermaker DS Smith. Having a strong position in the business is expected to be in long-term demand, even if cost inflation can affect profits.

All these businesses face risks, of course. Dividends are never guaranteed. But each has a strong position in the industry with high customer demand. If it can use its unique advantages to tap into that demand and generate free cash flow, hopefully the company can continue to fund its large shareholder payouts.

Earn money from dividend stocks

Investing the same amount of money in these four dividend stocks would yield an average of 7.8%. So if I invest £12,850, I should hit my income target.

If I had a spare £12,850 to invest now and wanted to increase my passive income, I would be happy to buy these four companies for my Stocks and Shares ISA. I can then sit back and mostly forget about it for the coming year, as the dividends hopefully start to pile up.

I occasionally check to see if anything has happened to change the underlying investment logic. But, if not, I’ll just let the reality of owning FTSE 100 dividend stocks work its magic – and hopefully earn me a four-figure passive income every year.