HERE’S HOW I’D AIM TO START EARNING £100 IN WEEKLY PASSIVE INCOME
Passive income is as simple an idea as it sounds: earning money without working for it. But while the idea may be simple, the reality can be more complicated. A lot of people put time into plans that seem anything but passive to me.
By contrast, my approach of earning dividend income by investing in shares involves very little time commitment on my part. Here is a description of how I could use such a plan to target a weekly passive income of £100.
Buying dividend shares
Not all shares pay dividends, even if they have done so in the past. So when building a portfolio with the objective of passive income, I focus on the long-term cash generation potential I think a business has.
For example, does it have some unique advantage in a field likely to experience ongoing high customer demand? Could that be turned into profits that can fund dividends, or might they need to be used for other purposes, such as paying down debt?
An example of a share I own for its passive income potential is financial services company Legal & General. I expect demand for financial services to remain high in the long term. With a large customer base and strong brand, I think Legal & General has a competitive advantage within that field.
At the moment, its dividend yield is 9%. That means that for every £100 I invest in Legal & General shares today, I will hopefully earn £9 in dividends annually.
Risk management
I say ‘hopefully’ because dividends are never guaranteed. So although I happily own shares in Legal & General, they form only one small part of a portfolio diversified across a range of companies and industries.
Aiming for a target
Still, although dividends are not guaranteed, I use the average prospective yield of my portfolio to predict my passive income.
If I wanted to target £100 a week (£5,200 annually) then, if I earn an average yield of 5%, I would need to invest £104,000 to hit my target. If I managed an average yield of 8%, by contrast I could hopefully hit my target by investing £65,000.
But I would not invest on the basis of yield alone. Instead, I always look at what I think are a company’s long-term financial prospects and its valuation. Only then do I consider the yield.
Step by step
But many people do not have a spare £65,000 or more sitting around. Even starting with nothing, I could still work towards my passive income objectives. I would start by setting up regular payments suitable for my own financial circumstances into a share-dealing account, or Stocks and Shares ISA.
After that, I would use the money to buy more shares over time and build up my portfolio. Although doing that could take me years to reach my £100 weekly passive income target, I would hopefully earn dividends along the way.
The post Here’s how I’d aim to start earning £100 in weekly passive income appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
More reading
- I’m taking advantage of this rare opportunity to buy FTSE 100 stocks
- Dirt cheap UK dividend shares to buy before it’s too late?
- How to target £1m by investing £750 a month in a Stocks and Shares ISA
- Investing in penny stocks? 3 critical metrics to watch closely
- This dividend stock has humungous comeback potential! Should investors buy today?
C Ruane has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.
2023-08-19T12:02:38Z dg43tfdfdgfd