Lockdown has been difficult for many people. But one small positive thing is it has enabled a lot of us to do things differently and make some positive changes. For example, during lockdown I have had more time than normal to work on my passive income ideas.
When things get back to normal, instead of spending a couple of pounds each day on an expensive coffee I don’t need, here’s how I will put that money into passive income ideas instead.
Some investment beats no investment
Passive income is really only passive in my opinion if it involves no work. But income for no work usually requires some capital.
It is easy to think that a lot of capital would make everything easier – and in some ways it likely would! But passive income seekers tend to be self-starters who want to make the most of their situation. So what if one has no capital to start? Putting aside just a couple of pounds a day soon adds up. Why buy the coffee when one can buy shares in the coffeemaker?
That’s possible – while Costa owner Coca-Cola and Starbucks are American companies, UK-listed coffee sellers include Greggs and Wetherspoons. But as passive income ideas, I wouldn’t be looking at either of those names right now. That’s because the hospitality industry has been hard hit by lockdown. Wetherspoon made its first loss in decades, and like Greggs it suspended dividend payouts.
Instead, for income I’d look at companies whose income streams aren’t needed to fix pandemic damage to their business and instead can be used for dividend payments. Consider as an example Legal and General. The company has taken a pause in increasing dividends for a year, but it hasn’t stopped them. The general insurer plans to restart increasing dividends and keep clicking them up for the next few years. Even if the business environment worsens and makes that difficult, the shares currently yield 6%. That makes it attractive to me among passive income ideas.
Passive income ideas and timing
Legal and General pays a couple of times a year. That might not make it as attractive as other passive income ideas which pay more regularly.
For example, British American Tobacco and Unilever pay out four times a year. Their dividends are split evenly, whereas some other quarterly payers like Imperial Brands pay out two larger and two smaller payments over 12 months. For some people that might not matter, but if payment timing is important then it can be worth looking into it when considering passive income ideas. For example, if I was foregoing my fancy coffee each day and hadn’t received a penny of dividends seven or eight months later, my will to keep hunting for passive income might wilt. Starting to see passive income coming in on a fairly regular basis would be positive reinforcement for me foregoing overpriced coffee and putting a couple of pounds each day into a Stocks and Shares ISA instead.
Once life gets back to normal, everything doesn’t have to go back to the way it used to be. Instead of poring over a menu of overpriced brews, I’d rather focus on discovering underpriced passive income ideas.
