Passive income is all about bringing in a regular stream of cash that we don’t have to lift a finger for. It’s money that we can earn while we’re sleeping, or doing anything other than working for it.
The only way for me is to go for a Stocks and Shares ISA. To aim for some fully passive income in the future, we do have to do a bit work work up front, including earning the money to put into the ISA in the first place.
And we have to choose which shares to buy. But if we can adopt a hands-off long-term strategy, we can hopefully look forward to just sitting back and watching the cash roll in.
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Banking on dividends
Buying shares that pay steady dividends is a popular approach. HSBC Holdings (LSE: HSBA) is a popular income stock, so what’s good about it? The share price has had a great five years, rising 80%. But its real popularity comes from dividends, with a 5.5% forecast yield.
Some FTSE 100 dividends are quite a bit higher. But investors generally see the HSBC dividend as one of the more reliable ones and typically well covered by earnings. Forecasts for the next few years put earnings per share (EPS) at around twice the predicted dividend.
The huge forecast 10.2% at Phoenix Group Holdings looks very attractive. But analysts expect earnings to fall short of the projected dividend in the next few years.
Phoenix might still be a good investment, and I quite like it myself. But I can see why investors might see lower risk from HSBC and believe they’d sleep more soundly with it.
The main risk I see with HSBC is its exposure to China, and growing trade wars don’t help on that front. I have HSBC on my candidates list, well ahead of a Cash ISA, but I’d only consider buying as part of a diversified ISA.
But what about…?
People often ask me what about property rather than shares? Buy a rental property and the income could keep you going nicely, surely. Well, I’ve done that, and it’s very much not a no-work investment. It needs management, and it can be quite intense at times.
To go for property, I prefer a real estate investment trust (REIT). They invest shareholders’ money, and hand the profits over to us… and they do all the work of managing the portfolio so we don’t have to do a thing.
They can be flexible too. Supermarket Income REIT owns and rents supermarket real estate, as its name suggests. Primary Health Properties invests in purpose-built healthcare facilities. I’m actively considering both of those.
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And what about…?
So what about gold and silver, then? They’re big with investors and they’ve been doing well. Rather than hoarding the metal and having to polish it, why not consider buying shares in a mining company? Fresnillo, the worlds largest primary producer of silver (with gold too) has to be one consider.
Whatever businesses or sectors I want, I reckon a diversified Stocks and Shares ISA has to be the least-effort way to build up passive income. Sweet dreams.
