Building a stream of passive income is a proven tactic for achieving financial freedom. After all, the more money earned while sleeping, the less time needed to be working. And for those fortunate to have a chunky lump sum of capital saved up, it can kick start this journey today with dividend shares.
So if I had £30k in a savings account ready to invest, here’s how I’d aim to generate a new passive income stream by simply owning top-notch income stocks.
Building an income portfolio
Thanks to the recent correction, UK investors are spoilt for choice when it comes to income opportunities. Plenty of industry-leading companies in the FTSE 100 and FTSE 250 are offering impressive dividend yields. In fact, there are currently just under 50 stocks across these flagship indices offering payouts of 7% or more.
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Typically, seeing this level of payout from a dividend-paying company is a bit of a red flag. Maintaining such a high yield’s a challenge. But there are always exceptions. And in 2024, with valuations still busy recovering, such exceptions are seemingly more common.
That’s terrific news for those looking to establish a passive income portfolio right now. And providing that an investor is prudent in their investment approach, building a 7% yielding portfolio could instantly turn a £30k lump sum into a £2.1k second income stream.
What are the best income stocks to buy now?
Looking across the high-yielding opportunities on the London Stock Exchange, there seems to be a diverse collection of industries for investors to choose from. However, one sector I’m paying close attention to is renewables.
The long-term demand for green electricity is unsurprisingly set to surge, especially as electric vehicles (EVs) become more prominent. However, the short-term outlook is also starting to appear promising. With the Bank of England aiming to cut interest rates in the not-too-distant future, the pressure on high-debt balance sheets is slowly being released.
For renewable firms like Greencoat UK Wind (LSE:UKW), that’s terrific news. Acquiring wind farms isn’t cheap. And with the cost of debt set to fall, management will be in a far stronger position to capitalise on the government’s push to reach net zero.
Pairing this with smaller chunks of cash flow being gobbled up by loan obligations means that dividends are looking both increasingly sustainable and capable of expansion. As such, the yield on an investment today could be set to climb even higher over the next decade.
Of course, renewable energy isn’t the only sector filled with opportunities. Real estate, industrials, banking, healthcare, and countless others hold hidden gems. And diversifying across a broad range of top-notch firms will likely be essential to long-term success.
But don’t forget dividends don’t always go up. And any unexpected disruption to cash flow could easily compromise a portfolio’s ability to generate passive income.
