When aiming to build a secure and lucrative passive income stream, it’s best practice to diversify between multiple different stocks. However, evaluating the potential returns from individual stocks can give you a better idea of how much to allocate to each.

That’s why I’m figuring out how much this stock could deliver if I bought 5,000 shares. Doing this exercise with each stock in my portfolio gives me more insight into their relative value. Equally, it’s important to evaluate the risk each stock presents.

Smart money management

MONY Group‘s (LSE: MONY) the FTSE 250 parent company to the online budgeting and personal finance sites MoneySuperMarket and MoneySavingExpert. The sites provide price comparison tools along with various tips and strategies to help consumers save money. An appropriate stock option when considering an extra income stream!

I remember when MoneySavingExpert launched in 2003. I was a big fan from the early days, long before I learnt about the benefits of dividend investing. Now I’m investing in the very company that taught me the importance of smart money management.

Dividend forecast

MONY’s been a solid dividend payer since 2007, increasing its annual payment at a rate of 8.68% a year. It’s grown from 1.6p per share to 13p today and is expected to reach 14p next year.

The yield’s expected to rise above 7% by 2026, more than double that of the FTSE 250 average. Earnings per share (EPS) is currently 14p and is forecast to rise faster than dividends, reaching 17p by 2026.

Valuation and risks

Lately, the share price has been declining, down 43% over five years. I’ll admit, that’s not exactly encouraging.

However, the low price currently looks like good value to me. Plus, the strengthening economy could help it grow from here, as happened in 2014 and again in 2022.

Now at the lower end of what looks like a decade-long price cycle, it may be getting ready to make a recovery. Its price-to-earnings (P/E) ratio of 13.8 is expected to decrease as earnings improve.

However, there are factors that could stall growth. The price comparison market in the UK’s highly saturated. MONY’s a big player in the industry but still faces stiff competition from the likes of CompareTheMarket and PriceRunner. 

There’s the ever-present risk that major service providers choose to work exclusively with other comparison sites. As these partnerships are a critical source of revenue for the business, losing them could threaten its profits.

Estimating returns

Over the past 16 years, the price has grown at an annualised rate of 11.7% a year. Now at almost £2 a share, a £10,000 investment would net me 5,000 shares.

Assuming the above averages hold, that investment could grow to £274,360 in 20 years (with dividends reinvested). At that point, it would pay out annual dividends worth £20,378 a year — about £1,700 a month.

The above example shows the power of compounding returns by reinvesting dividends. However, investing in a single stock’s risky. I bought some shares in MONY as part of a larger income portfolio that includes a mix of value, growth and defensive stocks. 

I don’t plan to buy more now, but for investors putting together a new portfolio, I think it’s a stock worth considering.