Profitable businesses can be great sources of extra cash. But building a portfolio that can generate meaningful passive income in a Stocks and Shares ISA takes time.
That’s why the most important thing investors need to look for is a company with strong long-term prospects. And I think there are a couple that might get investors off to an excellent start.
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Should you invest £1,000 in Barratt Developments right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barratt Developments made the list?
Games Workshop
I think investors starting from scratch right now could do very well by considering shares in Games Workshop (LSE:GAW). The stock has a dividend yield of just over 3%.
That might not sound like much, but there’s something important to note. It’s that the company has a terrific record of increasing its distributions to shareholders over the last few years.
While the company has some strong intellectual property, Warhammer isn’t a product that people strictly need. That means there’s always a risk of lower profits in an economic downturn.
Despite this, the business has been impressively resilient in the past. And while this isn’t a guarantee of future success, I think it’s something investors should pay attention to.
Supermarket Income REIT
Another investment that I think is worth researching is Supermarket Income REIT (LSE:SUPR). The company’s a real estate investment trust (REIT) that leases a portfolio of retail properties.
Right now, the stock comes with a dividend yield of 9%, so it can start returning a lot of cash for investors from the outset. And its existing lease contracts still have a long time to run on average.
A risk that investors need to keep in mind is the fact that over 50% of the firm’s income comes from two tenants. And that puts it in a weak position when it comes to negotiating future rent increases.
Importantly though, Tesco’s been increasing its store count since 2020. And that’s a very positive thing in terms of demand for Supermarket Income REIT’s properties over the long term.
Starting from scratch
Games Workshop brings strong growth and Supermarket Income REIT offers a high starting yield. Together, I think they might make a strong passive income portfolio.
Over the last five years, the two together have managed an average 15% annual dividend growth. Combine that with an average starting yield at today’s prices of 6% and the result looks interesting.
Investing £100 a month at that rate of return could build a portfolio generating over £1,500 a year in dividends after 10 years (although that isn’t guaranteed). And the equation looks even more attractive over the longer term.
Continuing to invest at that rate for 20 years increases the return to £7,375 a year and £31,301 after 30. And with a Stocks and Shares ISA, none of that has to be paid out in dividend taxes.
Regular investing
Starting from nothing, I believe it’s possible to earn over £7,000 a year in dividends by investing just £100 a month. And this doesn’t depend on getting lucky with just one stock.
Games Workshop and Supermarket Income REIT are two shares I think could turn an empty ISA into a passive income machine.
