Investing in UK shares can be a great way to make a long-term passive income. The FTSE 100 alone is packed with mature, cash-generating companies that pay big dividends. There are stacks of top income stocks to buy on other London Stock Exchange indexes, too.
The good news is that investors don’t need to spend a fortune to create life-changing wealth, either. Let me show you how.
Creating wealth with just £7
Most people don’t have large sums on hand to invest in British stocks. Money is even tighter now as inflation sticks close to 40-year highs.
But that’s okay. For the cost of a couple of Starbucks coffees each day I could put myself on the path to financial comfort.
Let’s say that I can regularly put aside £7 each day to invest. Over the course of a month that adds up to a cool £212.91. After a year, I’d have £2,555 sitting in my piggy bank.
Now let’s assume I use this to buy income stocks with dividend yields of 5%. If brokers’ dividend forecasts prove correct that would make me a passive income of £127.75 in a year.
Big long-term returns
This clearly isn’t a sum that’s going to transform my standard of living. But the most successful investors are those that take a long-term approach, as billionaire stocks guru Warren Buffett would attest.
If I continued to invest that £7 a day, I could turn that passive income of £127.75 in year one to more than £1,277 by year 10. If I kept it up I could eventually make an annual second income above £3,832 by year 30. After those three decades I would have also created a formidable shares portfolio!
2 FTSE 100 stocks on my watchlist
Of course I could make an even-better return if I can find dividend stocks with yields above 5%. Here are two high-yield FTSE 100 shares I’m considering buying for my own portfolio in 2023.
Telecoms business Vodafone has a long track record of paying market-beating dividends. And for this financial year the company boasts an enormous 8.7% dividend yield.
Vodafone is able to pay big dividends thanks to its exceptional cash generation. It can also afford to pay above-average payouts thanks to its defensive operations.
Mobile phone and broadband demand remains stable at all points of the economic cycle. This means the company has enough profits to dish out healthy shareholder rewards.
I’d buy Vodafone shares despite the threat that huge competition poses to earnings.
Fellow FTSE 100 share Phoenix Group meanwhile carries a terrific 8.4% dividend yield. This is another company whose everyday operations generate lots of cash. It buys insurance policies from other financial services providers and runs them to completion.
I like Phoenix Group because of the immense brand strength of its Standard Life division. On top of this, I believe demand for insurance and retirement products could soar as the UK’s elderly population rapidly grows.
A lack of decent acquisitions could damage earnings growth. But on balance I think Phoenix is a great dividend share for long-term passive income.
The post How investors can make a passive income with just £7 a day! appeared first on The Motley Fool UK.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. 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 2023