The average UK household has just under £8,000 squirrelled away in savings. If I had that kind of money spare, I’d want to grow it by creating a passive income stream. That way, I could see my account expand without doing much at all.
My strategy? A focused investment in dividend-paying Investment Trusts and Real Estate Investment Trusts (REITs), leveraging the power of compounding dividends.
At the heart of my investment philosophy is an aim to choose companies well placed for growth that also pay above-average yields. This approach not only diversifies my portfolio but also taps into different sectors of the economy. The result is that I spread risk while hopefully boosting potential for income.
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The mining pick of the litter
My choice for a high-yielding Investment Trust is BlackRock World Mining Trust. I already own this stock, which yields 7.6%. I see it as a way to profit from the green metals revolution.
The Trust targets income and capital growth by investing in a diversified portfolio that includes major players like BHP, Vale, and Glencore. These companies are at the forefront of supplying essential materials for digital transformation and sustainability initiatives. They have significant investments in sectors like copper and industrial minerals. Such materials are crucial for renewable energy technologies, leaving the Trust well-positioned to benefit from the global shift towards greener economies.
Of course, industrial commodity prices are viciously cyclical. Therefore, I need to be prepared to see the share price plummet if the world slips into a protracted recession.
Healthy dividend yield
My number one REIT is FTSE 250 stalwart Primary Healthcare Properties (LSE:PHP). With a dividend yield of 6.9%, this company belongs to the coveted Dividend Aristocrat club. In other words, it has raised its dividend for more than 25 years on the trot without once disappointing investors.
Meanwhile, its focus on healthcare facilities in the UK and Ireland presents a resilient investment opportunity, given the essential nature of healthcare services. Still, given how involved the government is in the provision of healthcare, sudden changes in policy regarding the use of private providers could kneecap PHP’s business model.
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Crunching the numbers
I’d invest the £8,000 evenly between Primary Healthcare Properties and BlackRock World Mining Trust. Averaging these yields to 7.25% and applying the rule of 72 suggests it would take just under 10 years to double the investment. That is of course assuming the dividends were reinvested and yields remained constant (which isn’t guaranteed).
| Year | Value of Investment (£) |
| 1 | 8,580 |
| 2 | 9,204.05 |
| 3 | 9,876.34 |
| 4 | 10,599.76 |
| 5 | 11,377.23 |
| 6 | 12,211.68 |
| 7 | 13,106.09 |
| 8 | 14,063.49 |
| 9 | 15,087.00 |
| 10 | 16,179.75 |
Of course, 10 years might seem like a long time to wait. That’s especially true when slick, silver-tongued gurus online are promising rapid returns by gambling on niche cryptos or setting up a drop-shipping business.
Personally, I prefer to hunt for dividend-paying stocks in sectors I’m bullish on, like mining or healthcare. I’m hopeful that by investing in these rock-solid shares I’ll see my nest egg compound and thrive.
