Tuesday, 5 May 2015

How many GlaxoSmithKline shares would I need to own to retire by age 45

I am interested in investing in a major pharmaceutical company like GlaxoSmithKline (GSK) and living off the quarterly dividend income. I am not alone as the majority of stock traders are investing in high yield dividend stocks to enable them to retire early and live off the yearly dividend payments. They set themselves targets each year and hope to surpass them. They invest any spare cash they have into such stocks and reap the rewards of the dividends. My question is how many shares in GSK would I need to own to generate enough dividend income to be able to retire by age 45?

Firstly I need to consider how much money I would need on a yearly basis to be able to leave the daily grind of 9-5. I have come off with the figure of £18000 after tax. This would give me £1500 monthly, which means this is the amount of dividend money I need to get each month. I plan to hold the GSK shares in a stocks and shares ISA which means that I will not have to pay tax on any dividends received.

Basically I need to find out how many GlaxoSmithKline shares I would need to get £18000 a year in dividends. Looking at the GSK dividend history from 2014 I can see that the company paid shareholders 80 pence per share. Of course I have to assume that the dividend payments will stay stable at 80 pence per share, or even better increase each year. Doing a quick calculation I can see that I would need to hold 22500 GlaxoSmithKline shares. Now for the scary fact, the price these would cost. Yep a rough calculation at the current share price tells me these would cost me a staggering £339 975.

Of course I want to reach this holding by the time I am 45, which gives me 12 years. Even then 339 975 divided by 12 means I would need to invest £28331 per year. I have to be honest and say that it is not possible for me to invest anywhere near this amount. I could possibly invest 10% or maybe 20% of this amount.

So what now? Do I give up or rethink my strategy? Well I will never give up. I guess I will try and invest as much as I can each year and reinvest all my dividends into more shares. This will help me reach my target of 22500 shares sooner rather than later. Dividend growth starts to happen quickly when your dividend payments rise. The company could also grow and increase their dividend payment so this would help me too. Who knows what the future may bring.

However it is unlikely I would risk all my money in one company, no matter how secure they appear in today’s market. I wish I could afford so many GSK shares though. Have you set yourself an annual dividend target which would generate enough income for you to retire early?

5 comments:

  1. Wow, when you calculate it like that, that's a huge amount needed in a short amount of time. Somebody who started young and started investing as soon as they were working could possibly achieve that with compounding and more time to play with.

    I would like my dividends to cover some of my expenses but I'm not aiming for them to cover all of them. My target this year was just for the dividends to pay for my TV licence (!) which I'm going to achieve easily it appears. Next year, I'll target some other expense and work up from there. Dividend investing is only a small part of my portfolio right now, ultimately unlikely to make up more than 15% of my overall portfolio..

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    Replies
    1. Thanks for stopping by. Will you be investing in other buy to let properties any time in the future? This is something I may consider whenever I get my feet on the ground in my new build.

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    2. I was considering going halves on a BTL property with my sister early last year but she decided to go ahead on her own and I ended up putting my cash into my SIPP! So, in the immediate future no, I don't have plans to buy another BTL property . If I were to suddenly get some capital (eg premium bond or lotto win) then yes!

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  2. Hey Laura, I saw your post over on Dividend Mantra's Blog saying you only had 1 investment in Royal Mail. I wonder if this was during the IPO? If you need help in investing, particularly in UK stocks, I'm a contributor over at Seeking Alpha with DM.

    Feel free to read my articles, or send me an inbox at any time. I have a few very good articles that received Editor's Pick for my UK lists.

    N Mackintosh
    http://seekingalpha.com/author/nick-mackintosh

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  3. I look at my dividend income in much smaller bits rather than how many shares of X do I need to retire. I look at dividend income paying my cel phone bill, maybe a utility, filling up gas for the month, etc. These smaller more manageable milestones ensure that you won't get discouraged when calculating that you need, for example, to invest £28331 a year. Thanks for sharing.

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