With the stock market recovery under way, now could be the ideal time to buy dividend-paying shares, especially to create a passive income. UK shares, even after recent gains are cheap compared to the US, for example. Dividend yields also tend to be higher in the UK, which helps when it comes to creating a passive income.
I’m keen to make use of the current market conditions to build my portfolio further and make sure I’m creating a passive income, so that I can retire early.
The combination of many cheap shares, dividends returning and the government likely to pour money into the economy in today’s Spending Review, all combine to make me think that, yes now is the perfect time to buy shares with future income in mind.
But what’s the best way to go about it?
Investing for a strong passive income
I’m targeting companies I think can provide a strong total return. This means listed companies that pay a dividend, but can also grow their share price. I want to avoid value traps, those companies that are very cheap because they face long-term declines in their markets. One example of this would be tobacco.
Companies on my radar that potentially meet these criteria and that could therefore help me create more passive income are technology groups like Softcat and FDM Group. I also like Experian because of its growth and income and because fund manager Nick Train has bought-in, He’s a professional I respect.
I’ll also likely add to my holdings in Legal & General, Reckitt Benckiser and Diageo as they all strike me as quality companies. They have relatively predictable and high cash flows and profits, factors I like in my income-generating investments.
Other options
If you want a more hands-off approach, then investing in themes you think could be important over the next decade could be one way to go. You may even go a step further and invest through a trust or fund that looks into future technologies. For example, Gresham House Energy Storage Fund invests in a portfolio of energy storage systems, primarily using batteries in Great Britain. It also pays its dividend quarterly.
Another trust that’s very focused on future technologies is Scottish Mortgage (LSE: SMT). It’s a backer of Tesla and other innovative companies. It has a strong track record and experienced managers at the helm. If it can keep successfully backing the companies of tomorrow, investors with shares in the trust could do very well. Indeed, many have this year as tech shares have soared.
Overall, I do think now is a perfect time to be investing in shares to create a passive income. I know I’ll keep investing in great UK shares, funds and trusts for the long-term.
