Here’s how many Lloyds shares I’d need for £100 a month passive income

Close-up of British bank notes

I invested in Lloyds Banking Group (LSE: LLOY) to help build up some passive income for my retirement.

But before I dig into how many shares I might need, I want to touch on a few of my key long-term investing rules.

Shares for the long term

One is that I reckon a Stocks and Shares ISA is the way for me to go. The UK stock market has soundly beaten other forms of investment for more than a century now.

But there can be short-term risk. Just think what the 2020 stock market crash did for share prices. Still, look at the way most of them have already recovered, and some are well ahead of where there were.

So, next rule: I only buy shares if I want to hold them for at least a decade.

Diversify for safety

Thinking of that crash, some stocks are still way down at rock bottom. And it’s anybody’s guess when, or even if, they’ll recover.

So my next unbreakable rule is to keep good diversification in my ISA. That way, I’ll lower the risk I’d face should one stock, or a sector, head off a cliff.

That means I wouldn’t put all my money into Lloyds shares. But as part of a wider portfolio, I think adding £100 a month from them to build my passive income is a nice goal to aim at.

If I could do it with 10 different stocks, that would be a grand a month.

Lloyds shares

How many Lloyds shares would I need, then?

Well, there’s a 6% dividend yield on the cards right now. Forecasts see that rising to close to 8% by 2026, but I’ll play safe.

For £100 a month, or £1,200 a year, I’d need a pot of Lloyds stock worth £20,000. Oh, look, that’s exactly one year’s ISA allowance.

I don’t have that much to put down right now. But there are ways to get there, and it needn’t take a huge amount of cash up front.

£100 a month

What if I put £100 a month into Lloyds shares? It’s easy to pay regularly into an ISA, and then make a purchase when I’ve built up enough cash.

If I did that, and bought more shares with the dividends, I could reach my £20k target in 12 years.

So, £100 a month invested now for 12 years could turn into £100 income every month… forever. And that doesn’t account for any rises in dividends or share prices.

Long-term returns

I haven’t accounted for specific Lloyds risk either. And as it’s the UK’s biggest mortgage lender, it clearly does faces risk with today’s high interest rates. That’s why I diversify.

But, is all this realistic?

Well, we should expect Stocks and Shares ISA returns to go up and down, and even lose money some years. But in the past 10 years, the average return came in at 9.6%.

I reckon I have a very good chance of hitting an average annual return of at least my 6% from Lloyds dividends.

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Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.