My passive income list really is this simple

My passive income list is built on some basic principles – here I explain why.

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.

The appeal of passive income is easy to understand. Rather than working hard for every pound, sitting back and letting money come in without effort sounds alluring. While passive income is appealing, a lot of passive income ideas don’t make my list. I keep things simple by making sure my passive income list follows these rules.

A list needs more than one thing on it

A single idea doesn’t make a list. So, for example, although I look to make passive income from shares, I always make sure that I have multiple shares on my list.

It can be tempting to look at a share like Imperial Brands, whose yield has touched 10% this week, or Vodafone with a 6% yield, and imagine the income from concentrating in one such share. But investing in only one company is a risky strategy, no matter how good the company seems. Market demand can change, or a company can have bad luck. Both Imperial and Vodafone have cut their dividends in recent years, for example, and could do so again in the future.

What’s interesting is that some of the possible negative factors they face – such as declining tobacco use or the cost of mobile licenses – are industry wide. That’s why I don’t just diversify my passive income list across different companies, but also between industries. No matter how high yielding an industry may be, it is risky to put too much of one’s assets into it.

The sleep easy passive income list

Another thing about my passive income list is that I want it to be genuinely passive. I want to invest some money, sit back, and receive dividends regularly.

That means that I don’t invest in companies that require a lot of monitoring.

Instead, I prefer companies in established industries with fairly predictable results. Consider for example, McBride and Unilever. While the detergent maker McBride looked cheap to me a few months ago, its small size and limited pricing power mean it has struggled to grow profits in recent years. A new chief executive unveiled a focused strategy, which could change the results. For a growth pick, that might be attractive. But for a regular source of passive income which I don’t need to spend time thinking about, it seems like too much monitoring the company news for my liking. So it doesn’t make my passive income list.

By contrast, consumer goods behemoth Unilever has been growing its dividend for years and paid out all the way through the pandemic. That doesn’t mean Unilever is worry–free: a sustained fall in demand for its products could affect dividends, as for any company.

While it is adding new business areas whose long-term results are as yet unproven, the bulk of its revenues are derived from well-established business franchises such as Dove and Ben and Jerry’s. So I feel comfortable putting some money into Unilever and expecting passive income from it, without having to worry about its short-term business results impacting payouts.

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.

christopherruane owns shares of Imperial Brands and Unilever. The Motley Fool UK has recommended Imperial Brands and Unilever. 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

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »