Generating a passive income for life is a goal for many investors and savers. I believe that owning stocks and shares is one of the most straightforward ways of generating a passive income. Indeed, anyone can get started with this strategy with an investment of as little as £50 a week.
With that in mind, here are three passive income ideas I would acquire for my portfolio today with an investment of just £50 a week.
Equity investments
Such an investment will not generate enough cash for me to be able to give up working immediately. However, it is a great starting point. Thanks to the benefits of passive income generation and compound interest, this small weekly lump sum could become a substantial pot in the long run.
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There are three high-quality stocks I would acquire for my income portfolio. These are British American Tobacco, Phoenix Group and Regional REIT.
These companies all support dividend yields of between 6% and 8%. I have chosen them because I believe they have some of the most attractive and sustainable dividend yields on the market.
British American’s dividend is covered around 1.5 times by earnings per share. The company’s attractive profit margins allow the group to both invest in its growth and return cash to investors.
Meanwhile, Phoenix’s business model is based on buying books of pension policies. The company acquires these books policies and then uses its economies of scale to streamline the acquisition and reduce costs. Any leftover cash is then returned to investors.
Finally, Regional owns a portfolio of office properties outside the M25. Investors have been shunning commercial property investments over the past 24 months because, during the pandemic, tenants have stopped paying their rent. Regional managed to escape most of this headwind. Its rent collection figure is now back above 95%, supporting the firms 7.6% dividend yield.
Passive income portfolio
I would buy all of these companies for my passive income portfolio for the reasons outlined above. Nevertheless, they may not be suitable for all investors.
Some challenges these companies could face include regulations, especially for the tobacco and financial sectors, and higher interest rates on mortgages used to acquire properties for Regional. These challenges could increase costs, reduce profit margins, and the amount of cash available for distribution to investors.
Despite these issues, I think these companies are the perfect passive income investments. At present, a portfolio of all three would generate an average dividend yield of 7.2%.
On a sum of £50, that is equivalent to a return of £3.60. An investment of £50 a week, or £2,600 a month, could generate a passive income of £187 a year when invested in these businesses.
Thanks to the power of compound interest, this figure will grow over time. According to my calculations, an investment of £2,600 a year, generating a return of 7.2% per annum, could grow to be worth £42,000 within a decade. This lump sum would be capable of throwing off a passive income of more than £3,000 a year.
That is the strategy I would use to generate a passive income stream for life.
