Who else wants an extra $10,000 income next year?

A nice holiday every year for the diligent investor.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published July 24, 2014 9:50 am AEST

The importance of an extra $10,000 per year will vary depending on the individual, but there's little doubt that most people would be happy to have a little extra cash for a holiday or the home loan each year.

Where's my $10,000??

Well, first things first, investors need to get into a routine of saving money to invest in shares. If we assume that a portfolio of stocks could generate a 5% fully franked dividend payout, then an individual will need around $200,000 to generate an extra $10,000 per year. While that seems like a lot, an individual saving $1,000 per month ($250 per week) will take less than 12 years to reach $200,000 (assuming dividends are reinvested to that point).

Therefore, a 23-year-old will have enough by the age of 35 to take the family on a great trip once a year!

The Stocks!

Next, we need to find the stocks to fill our dividend portfolio in order to achieve a 5% return. I created a filter using my broker's or Google Finance's stock screener to find companies with a market capitalisation of over $100 million and a dividend yield over 4.8%. 4.8% was selected as I want to select companies that will grow dividends over time.

Here are the 10 stocks I would consider to deliver my $10,000 income:

Westfield Group (ASX: WFD); $22.46 billion market cap, 4.8% dividend yield
Insurance Australia Group Limited (ASX: IAG); $13.65 billion, 5.7%
SP AusNet (ASX: SPN); $4.59 billion; 6%
Coca-Cola Amatil Ltd (ASX: CCL); $7.18 billion; 5.2%
STW Communications Group (ASX: SGN); $0.6 billion; 6%
M2 Group Ltd (ASX: MTU); $1.14 billion; 5%
FlexiGroup Limited (ASX: FXL); $1.2 billion; 4.8%
National Australia Bank Ltd. (ASX: NAB); $78.5 billion; 6.1%
Thorn Group Ltd (ASX: TGA); $0.4 billion; 5%
Telstra Corporation Ltd (ASX: TLS); $73 billion; 5.2%

If anything…

This exercise has shown just how difficult it is to find quality companies yielding around 5%. The portfolio above would yield an average of 5.3%, however I would expect this to increase over time based on the companies selected.

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