How I’d generate a passive income from UK shares starting today

Buying a diverse range of UK shares that operate in a variety of sectors could produce a resilient and growing passive income starting today.

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.

Despite the recent stock market rally, many UK shares continue to have relatively high dividend yields. As such, they can be used to generate a worthwhile passive income in 2021 and in the coming years.

Focusing on yields and dividend growth is important for any income investor, I feel. But building a diverse portfolio that offers less risk and higher reward potential may be equally crucial. It could offer a more stable income stream that has a higher chance of rising in the long run.

As such, through buying companies with different geographic exposure and that operate in varied industries, it may be possible to obtain an attractive income.

Buying UK shares in different countries for a passive income

The prospects for the UK economy are set to improve sharply following the pandemic. But buying shares in a wide range of regions could be a sound move when seeking to make a passive income. After all, it is extremely difficult at the present time to deduce which countries and regions will bounce back the fastest from the economic challenges of the last year.

Fortunately, it is relatively straightforward to gain exposure to different parts of the global economy. For example, the majority of the FTSE 100’s income is derived from countries outside the UK. As such, it is not necessary to buy companies listed in other countries to gain exposure to different economies. This could make the process of building a diverse passive income stream easier for UK-based investors.

Purchasing UK stocks from different industries

Just as it is difficult to ascertain which countries will recover quickly from present challenges, it is also tough to judge which industries will perform well. As such, it may be prudent to buy UK shares that operate in different sectors to make a more resilient passive income.

For example, banking stocks have really struggled in the last year due to low interest rates and a weak economic outlook. They could experience further difficulties. Or they could be buoyed by an economic recovery that leads to a rise in interest rates over the coming years. Similarly, retailers’ performance may be very closely linked to the end of lockdown measures in the UK because of their presence on the high street. Predicting when social distancing requirements will end is a very tough task.

The cost of diversifying among a wide range of companies has fallen in recent years. As such, passive income investors with varying portfolio sizes may realistically be able to build a portfolio containing a relatively large number of companies. This may provide them with exposure to a broad range of businesses and sectors. And that could reduce their dependence on a small number of industries and/or companies. Over time, this may provide a more resilient and faster-growing income stream as the world economy recovers.

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

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »