Passive income ideas are not always easy to implement. But the more work they require, the less they are really passive. That’s why some of my favorite passive income ideas are UK dividend stocks that I can buy for my ISA. Here are five simple passive income ideas among UK dividend stocks that I would consider adding to my ISA today.
1. Direct line
Insurer and financial services provider Direct line has an 8% return, earning it a spot on my list of passive income ideas in the financial services industry. With more than 14 million policies in force, the company benefits from economies of scale. Its iconic red phone brand should make it possible to attract and retain customers for less. Below normal auto loss levels this year could boost 2021 profits.
But there are risks here. Today, the company warned that rising used vehicle costs could increase its claims costs.
2. National network
Much of the backbone of the UK electricity grid is supplied by national grid. This gives the company what investor Warren Buffett calls a “pit”: Something that helps them maintain a competitive advantage. In turn, this means that it can generate a profit and fund a dividend that currently stands at 5.2% per annum of today’s share price.
This places National Grid firmly on the list of passive income ideas I would consider buying for my wallet. But one of the risks is the increase in investment spending to meet changing energy needs. This could hurt profit margins.
3. British American tobacco
From cigarettes to vaping, British American Tobacco is a company whose strong brands such as Stroke of luck give it pricing power. Falling demand for cigarettes in key markets is putting future revenue and profitability at risk, but for now, the cash cow business pays the company an 8.4% dividend.
Newer formats such as vaping could also help mitigate the revenue impact of declining cigarette sales in some markets, although so far their profitability has been less attractive.
Telecom giant Vodafone offers a dividend yield of 6.9%. This is why this is one of the passive income ideas that I would consider adding to my portfolio. With a strong position in many makeshift markets, I believe the company’s extensive network and recognizable brand could help it earn healthy profits for years, if not decades, to come. One of the concerns is the large debt of the company. A service that could reduce the money available to fund dividends.
I would also consider PA among the passive income ideas for my portfolio. Major oil and gas reports 4.6%. I expect the energy demand to remain high for a long time. This should benefit BP. If prices come down it could hurt profits, but after falling last year, the dividend looks more sustainable than before.
Put my passive income ideas into action
These five ideas won’t earn me a dime if I don’t do something with them.
It could be as simple as putting money into a stock and stock ISA, buying all five stocks, and sitting around hoping to increase my passive income stream.
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Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK recommended British American Tobacco. 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.