How I’d protect my financial future with a passive income from dividend shares

Securing my financial future is vital nowadays. I think the stock market offers the chance to generate a passive income from dividend shares.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With all the unexpected changes we’ve experienced in 2020, securing our financial futures has become an ever more important endeavour. Financially speaking, so many of us live life in the moment, never thinking much further ahead than the end of the month. This is all fine when the bills are being met and life’s ticking along, but it’s a disaster waiting to happen when circumstances change for the worse. For those with a little extra cash to spare each month, I think the stock market is a great place to invest for the future. And with dividend shares, I can even generate a passive income.

Is now a good time to invest?

Billionaire investor Warren Buffett says we should be greedy when others are fearful. What he means by this is that there are great stock bargains to be found when the majority are panic-selling. Buying shares in a downturn and holding them until positive sentiment returns is a method that’s made many millionaires. That’s one reason I think it’s a good time to start investing in the stock market.

By putting money into the stock market, I’m able to grow my income and build wealth to protect my financial future. The key is to choose quality companies with a history of paying a dividend yield and a promising future outlook. Of course, with many quality companies suffering and dividends being cut, this is slightly harder in the current climate.

Should you invest £1,000 in Centamin 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 Centamin made the list?

See the 6 stocks

Choosing dividend shares

With the future still relatively unknown, stock picking becomes trickier. Nevertheless, I don’t think we should write it off as a bad idea. The FTSE 100 and FTSE 250 contain many fantastic UK companies. And I’m sure plenty of them will see their share prices soar in the coming five to 10 years (and possibly sooner if the world can get back to normal this year). By weighing a company’s strengths and weaknesses, I can make an informed decision and buy shares with confidence.

While the recent resurgence in Covid-19 cases has caused more restrictions, we need to remember the vaccine rollout is happening. This is so important because it provides hope in a time of anxiety. But asides from this, Britons have proved themselves to be very resilient and quick to adapt to change. As have UK businesses. The Office for National Statistics reported that November retail sales suffered less than expected during the second English lockdown. This is encouraging and gives hope that we’ll return to a new form of normality later in 2021.

With a passive income in mind

To protect my financial future, I’m researching stocks and making a list of great companies to buy in the coming months. To help build a passive income, those with a dividend yield or the likelihood of a dividend comeback are at the top.

When I consider a company’s future, I’m thinking five years ahead at a minimum. I want to generate a passive income, while building capital gains for a nest egg.

As an example, if I invest £250 a month, at an effective annual interest rate of 6% for 35 years, I can look forward to a substantial return of over £345k. Dividend shares help with compounding and boosting the annual rate of return. I like Buffett’s buy-and-hold approach to investing and think it’s a great way to get started. 

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 high-yield dividend shares to consider buying for a retirement portfolio

Dividend shares can provide retirees with regular passive income in their golden years. Our writer picks out three with yields…

Read more »

Investing Articles

Tesla stock has halved. Could it now double – or halve again?

After a wild few months for Tesla stock, Christopher Ruane weighs some pros and cons of the investment case. Could…

Read more »

Investing Articles

Does it make sense to start buying shares as the stock market wobbles?

Does a rocky stock market make for a good or bad time to start buying shares? This writer reckons it…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£15k of passive income a year? It’s possible with the right dividend strategy!

To figure out how much dividends are needed for a lucrative passive income stream, investors must understand which strategies get…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As US markets wobble, I’m listening to Warren Buffett!

The long career of billionaire investor Warren Buffett has included plenty of market turbulence. Here's what our writer's learnt from…

Read more »

UK money in a Jar on a background
Investing Articles

5 shares yielding over 5% to consider for a SIPP

Christopher Ruane introduces a handful of FTSE 100 and FTSE 250 shares he thinks an income-focussed SIPP investor should consider.

Read more »

Investing Articles

Here’s how an investor could invest a £20k ISA to target £1,500 of passive income per year

Can a £20,000 ISA throw off close to £30 per week on average of passive income when invested in blue-chip…

Read more »

Investing Articles

As gold hits $3,000, this FTSE 100 stock is primed for blast off

As Western institutions scramble to get as much gold as they can lay their hands on, Andrew Mackie believes this…

Read more »