Passive income ideas I would use to try and earn £ 100 per month
Passive income is money that comes in without the need for work. The concept sounds appealing to me, but passive income ideas aren’t always as easy as I would like them to be.
I don’t like the potential hassle of setting up a drop-shipping program or designing a digital course. Instead, I just invest in stocks.
Goal £ 100 per month
Let’s say I wanted to earn £ 100 per month. This would require dividends of around £ 1,200 per year. As dividend payout times vary, I’m talking about £ 100 on average per month, not a £ 100 payout every month.
the FTSE 100 the yield has hovered around 3.5% on average over the past two decades. At this rate, I would have to invest around £ 34,000 to generate £ 100 in dividends per month. This is a fairly large initial down payment.
However, some stocks offer a return above this average. By investing in such passive income ideas, I could try to generate £ 100 per month using less upfront capital.
Balancing the risk
Sometimes stocks offer a high return for a reason. Maybe the market doesn’t think it can maintain its payout levels, for example.
When selecting my passive income ideas, I wouldn’t just focus on historical dividends. I would look at what I thought a business could pay for in the future. In addition, I would seek to diversify into different companies and sectors.
High yield tobacco
Tobacco stocks often have high returns. This in part reflects the strong cash-generating business model. But I think it also indicates concerns about the sustainability of customer demand. Declining cigarette sales may reduce income and profits.
I would choose anyway British American Tobacco for my passive income stream, however. The company offers a strong brand portfolio, massive cash flow and a progressive dividend policy. It is currently earning 7.6%. So putting in £ 6,150 should generate almost £ 39 in dividends per month for me.
Next on my list of passive income ideas is the name of financial services M&G. The well-known financial services brand increased its dividend this year. With a yield of 7.7%, £ 6,150 invested in M&G shares would give me a potential return of around £ 39.50 per month.
One of the risks is any financial downturn, which could reduce demand and reduce the company’s profitability.
Passive income ideas on my shopping list
My third passive income idea would be a supermarket operator Tesco. At 4.3%, its dividend yield is lower than my other two picks. This would still work out to around £ 22 per month on average from dividends.
Tesco has the largest market share of all UK supermarkets. In addition to a large number of stores, it quickly developed its online business. But an extremely competitive market risks reducing profit margins in the future.
Put my passive income ideas into action
For £ 18,450 today I could create a passive income stream equivalent to £ 100 per month. Also, I only need to pay once for the shares. But if companies continue to pay dividends in the future, my passive income stream could continue indefinitely.
However, dividends are never guaranteed. There is a risk that they will be cut or canceled. Imperial cut its final year, and Tesco halted dividends for several years before restarting them in 2018.
Dividends are often paid quarterly or semi-annually, so I wouldn’t expect passive income to be received every month. If the monthly schedule is important, I could put together a passive income stream designed around this goal.
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christopherruane owns shares of British American Tobacco. The Motley Fool UK recommended Tesco. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.