How I’d invest £3,000 in cheap UK dividend shares today to make a passive income

These UK dividend shares could offer a sound means of making a passive income, in my view. I’d buy them as part of a diverse portfolio 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.

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.

Making a passive income from UK dividend shares could be a sound long-term move. The prospect of low interest rates and a likely economic recovery may mean they offer relatively high, and growing, dividend payouts in the coming years.

Of course, there’s never a guarantee that any company will pay dividends in future. Similarly, their share prices could fall heavily at any time. As they did in the 2020 stock market crash.

However, taking those risks into account, these three FTSE 100 shares could offer an appealing income stream. As such, they could be worth buying with £3,000, or any other amount, today.

Making a passive income with UK dividend shares

Rio Tinto may not be an obvious choice when it comes to making a passive income from UK dividend shares. The mining company’s profitability can fluctuate significantly. Especially as it’s dependent on the world economy’s performance. However, the company’s dividend yield of around 5.5%. Add to that its solid balance sheet and the potential for improving operating conditions in a resurgent world economy could make it an attractive long-term purchase.

Unilever could also offer an appealing income stream. Clearly, it’s faced tough operating conditions in recent months that may continue to weigh on its outlook. However, the company’s 3.8% dividend yield could suggest it offers good value for money. Its forecast rise in dividends per share of 5.5% next year may be indicative of its capacity to deliver an above-inflation rise in shareholder payouts.

Tesco is another UK dividend share that could produce a growing passive income. Weak consumer confidence may weigh on its prospects. But the company’s online operations may boost its capacity to pay a higher dividend. The company’s dividend yield of 3.3% isn’t especially high. However, it could offer defensive appeal that makes it a worthwhile income opportunity in the long run.

Building a diverse portfolio to reduce risk

Clearly, buying UK dividend shares to make a passive income comes with much higher risk than other assets. Therefore, purchasing a wide range of companies in a portfolio could be a means of reducing the threat of falling dividends, or declining share prices from a limited number of companies. Diversifying among different industries and geographies could be a prudent approach to take. Certainly, given the current uncertainties present in the world economy.

However, even when those risks are included, dividend stocks could prove to be a sound long-term means of obtaining a worthwhile income compared to other income-producing assets in a low interest rate environment.

After all, a recovering economic performance is forecast in the coming years. This may provide a boost to dividend payouts across a wide range of businesses that leads to a more attractive income return on a diverse portfolio of UK dividend shares.

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.

Peter Stephens owns shares of Rio Tinto, Tesco, and Unilever. The Motley Fool UK has recommended Tesco 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

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s how I’d target £496k in FTSE 100 shares and £19k of passive income in a Stocks & Shares ISA

I invest as much surplus cash as I can at the end of the month in my Stocks and Shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »