I love the idea of making money without the day-to-day hassle of actually creating it. Who doesn’t? But establishing a healthy passive income isn’t a pipe dream. I’m already building a second income by regularly investing in my Stocks and Shares ISA.
And in recent weeks I’ve been buying stocks with big dividend yields to boost my income. I won’t buy shares based solely on the near-term yield they’re offering. Indeed many vulnerable stocks have seen their dividend yields jump in 2022 as their share prices have plummeted.
However, selecting solid businesses with larger dividend yields can make a considerable difference to my monthly passive income.
2 top stocks in my ISA
Let’s say I’m aiming to make £300 a month — or £3,600 a year — in additional income from UK shares. If I bought dividend stocks with an average 2% yield I’d need to invest £180,000. That’s not an easy amount to come by, and especially in tough times like these.
However, if I invested in dividend shares with an average 10% yield, I’d likely need the much smaller amount of £36,000. Remember that the actual dividends investors receive do sometimes fail to match up to forecasts, however.
Here are two passive income stocks I’ve just bought for my Stocks and Shares ISA. I plan to hold each of these for at least a decade, hopefully receiving a healthy dividend income in that time.
Rio Tinto
Dividend yield: 10.7%
Rio Tinto (LSE: RIO) is one of the world’s largest producers of iron ore. It also provides other essential commodities like copper, aluminium and lithium.
Falling commodity prices have caused its share price to topple around 20% in just two months. I nipped in during late June to buy this bargain and am tempted to buy some more for my ISA following additional price falls.
Rio Tinto could come under pressure in the near term as the global economy slows and demand for its products weakens. But I expect things to improve strongly after then as themes like rising urbanisation and investment in the green economy boost consumption of its commodities.
Consultancy CRU expects world copper demand alone to rise 2.1% a year (to 28.5m metric tons) by 2030.
Persimmon
Dividend yield: 12.8%
I think Persimmon (LSE: PSN) could be one of the best stocks to buy for passive income. Its share price has slumped more than a quarter in 2022 as investors have feared the impact of rising interest rates on its sales.
I’m more worried about the issue of rising building product costs and materials shortages on its profits. But I still think the business — the UK’s second largest housebuilder by revenues — should generate healthy earnings growth as house prices rip higher.
Latest Nationwide data showed average annual home price growth hit 11% in July. This was up 0.3% from June, even though interest rates continued to rise. I believe prices will continue rising over the long term too amid a disappointing outlook for new home starts. And in the process, firms like Persimmon could deliver terrific dividend income to my ISA.
