Passive income is money that comes in without you having to work for it. Some of my favourite passive income ideas are UK dividend stocks.
Dividends are never guaranteed, though. So I try to use a variety of UK dividend shares as passive income ideas to limit the impact of a dividend cut by any one of my holdings. Here are five FTSE 100 shares I’d use as passive income ideas today.
Ringing up passive income
Mobile phone giant Vodafone pays out a yield of over 6%. That earns it a spot on my list of passive income ideas to consider.
With international exposure, continued growth for data demand, and a strong consumer brand, I like the prospects for Vodafone. But one cloud on the horizon is the high capital expenditure mobile networks require as technology evolves, as seen with the 5G rollout. That could eat into profits.
Passive income ideas in the City
Investment manager M&G enjoys a number of strengths, such as a well-established brand, entrenched customer base and revenue of over £5bn last year.
However, even after the share price has appreciated 46% in a year, the shares still yield over 7%. With one of the highest yields in the FTSE 100 index, they are among the passive income ideas I would consider for my portfolio. However, one risk is increased competition from the growing number of fintech firms. That could spell lower profits for companies like M&G.
Water choice
In the game Monopoly, utilities are often a dull but steady source of income. I think that also explains their appeal as passive income ideas.
United Utilities yields over 4%. The northwestern water and waste management specialist benefits from steady, predictable demand and limited consumer choice. Risks include possibly heightened costs of maintaining aging infrastructure like Haweswater Aqueduct.
This aisle for passive income ideas
Most people are familiar with Tesco as a supermarket chain. But I think Tesco could also be a good place to shop for passive income.
Tesco shares yield over 4%. Its recent first-quarter results showed that it managed to maintain the higher level of sales it achieved at the start of last year. As a bid for rival Morrisons suggests, the UK supermarket sector has attractions for investors such as significant property assets and large cashflows. However, margins have declined over the past decade or so. One risk is that increased online shopping leads to further margin dilution, due to delivery costs.
Imperial Brands
Tobacco maker Imperial Brands unveiled a new strategy this year, which aims to offset declining cigarette volumes by increasing marketing and pushing up prices. I think that buys it time to widen its future revenue streams, although the sale of its premium cigar business makes it more dependent on cigarettes than before.
Falling cigarette use in many markets is a key risk here. Even with the new strategy, falling revenues and profits remain possible. Set against that, even after a dividend cut last year Imperial still yields over 8%. That makes it one of my favourite passive income ideas.
