Passive income is money one receives without having to work for it. The idea was popularised by the book The Four-Hour Workweek. But the wealthy have earned passive income such as rent and dividends for centuries. A lot of people would like to receive passive income. But it can be hard to come up with good passive income ideas that require just a little bit of money up front.
I think one can set up a lifelong passive income stream with as little as £10 a week. Here’s how.
Focus on quality shares
It’s easy to be attracted to get rich quick schemes. But with a limited amount of hard-earned cash to use for any passive income ideas, my number one priority would be capital retention. Rather than hunt out eye-popping yields or speculative penny shares, I’d research shares in well-known names I expect to be around decades from now.
For example, drinks maker Diageo is an old, established company with iconic brands like Guinness and Johnnie Walker. While alcohol consumption is declining in some markets, I expect the company to continue to adapt. It has been raising its dividend for decades, based on a strongly cash generative collection of drink assets.
In the same vein, I think Unilever is the sort of well-run company that could stick around for a long time. The consumer goods giant has a portfolio that appeals across a wide range of markets and price points. That gives it resilience.
Passive income ideas that yield
But deciding to own blue-chip shares on its own isn’t enough for a passive income. For example, some such shares have suspended their dividends this year.
So I would focus on quality shares that also have a consistent history of paying out juicy dividends. Diageo and Unilever both meet that criteria. But other shares offer better dividend yields at their current prices. For example, Imperial Brands and British American Tobacco both offer high single-digit yields. Similarly, financial services provider Standard Life Aberdeen has been yielding over 7% recently.
These might not sound like exciting choices. That’s exactly why I like them as passive income ideas! Instead of a racy startup with unproven business prospects, I’d focus on generating passive income from companies with strong track records. £10 a week would soon add up. I’d have £520 in my first year of putting it aside each week. Investing that into a share with a 7% or 8% yield would mean I could expect around £40 of dividend income per year in future. If I didn’t spend all that income, but reinvested some of it, my future passive income stream could grow even faster.
British American Tobacco has a long history of raising its dividend. It has done so every year for over two decades. So, not only would I generate passive income, hopefully I could expect more each year. Meanwhile, if I continued to put aside £10 a week, my passive income generating investments would grow over time.
Lots of passive income ideas actually require a lot of set-up capital or time. Investing in well-established, high-yielding shares doesn’t. I’d look for passive income by finding out more about the right shares, and starting a weekly savings habit, today.
The post How I’d earn passive income with £10 a week appeared first on The Motley Fool UK.
christopherruane owns shares of British American Tobacco and Imperial Brands. The Motley Fool UK has recommended Diageo, Imperial Brands, and Unilever. 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.
Motley Fool UK 2020