Earning money without working for it sounds good to me. That is one reason why I invest in dividend shares. I also like the fact that I can do it without needing lots of cash to begin. If I had a spare £15 a week and wanted to start earning dividends, how would I go about it? Well, I would use this passive income plan.
Small and often
£15 a week may not sound like a lot of money. It is true that this approach will not start generating massive income streams in the short term. But it is a big enough amount to get going, adding up to £780 over the course of a year.
I think it makes sense to set an achievable weekly savings target, then stick to it. Putting money aside only occasionally or in large sums seems vulnerable to a change of priorities, I think. Getting into a regular, fixed habit seems like a smarter approach to me.
I would save the money in a share-dealing account or Stocks and Shares ISA. While I waited for the amount to grow large enough to start investing, I would do some research to find dividend shares to buy.
Finding shares
As the aim of my passive income plan is exactly what is says on the tin, I would not go after growth stocks. Instead, I would focus on what are known as income shares. Typically those are shares in companies that have sizeable free cash flows but limited need to reinvest them in the business. Think of a tobacco company like Imperial Brands or insurance firm such as Direct Line.
Income is never guaranteed, and even a company that pays a dividend now can stop it in future. So I would diversify my investment across a number of companies and industries.
My passive income plan involves looking for shares in businesses I understand. I would try to find firms I feel have long-term profit potential. For example, they may have a unique market position like Greggs or a business with high barriers to entry for competitors, such as power network operator National Grid.
The role of dividend yield
Once I had found such companies, I would look at their dividend yield. This is my expected annual dividend income as a percentage of what I pay for the shares. As an example, National Grid’s yield is 4.8%. That means by investing £100 in it, I will hopefully receive £4.80 of dividends a year.
That is quite an attractive yield compared to many FTSE100 companies. If I invested my first year of savings in shares with an average yield of 4.8%, I ought to receive around £37 in annual dividends.
Putting my passive income plan into action
I need to be realistic about what I can expect from my passive income plan for £15 a week. Over time, hopefully the dividend streams will increase. But to begin, they will be quite modest.
Still, for a fairly small weekly sum, I can get experience of the stock market and hopefully start earning at least some income without having to work for it. I just need to take some action so I can start to make my plan a reality.
