I have been looking for UK shares to buy to build a passive income stream. I think acquiring stocks and shares is one of the most straightforward ways to generate a passive income.
Unlike other passive income strategies, such as buy-to-let property investing, anyone can start investing in the stock market for as little as £25 a month.
However, this approach might not suit all investors, due to the volatility involved with investing in equities. Also, as dividends are paid out of company profits, they should never be taken for granted. If profits drop, the enterprise may have to slash its payout to investors.
Still, it’s an approach I’m comfortable using. As such, here’s a selection of UK shares I’d buy for my portfolio to generate a steady income.
UK shares for income
I only want to buy income shares for my portfolio that I think are going to be around and generating profits for the next five, 10, or even 20 years. Of course, I can’t guarantee that a company will still be around in 20 years. Still, I can try and focus on stocks with the most potential.
I think SSE is a good example. This utility provider is investing in the future. It is spending £7.5bn over the next few years, tripling its renewable energy generation capacity. I think green energy has tremendous potential and any company not investing in this trend risks being left behind.
SSE’s forward-thinking mentality could help support the stock’s 4.9% dividend yield.
Another company I’d buy for my passive income portfolio is IG Group. This company has ambitions to become one of the top financial institutions in the UK. It’s investing heavily in marketing and expanding overseas.
As it grows and acquires customers, I reckon IG can become a force to be reckoned with. This growth should help support its 4.7% dividend yield.
Another stock I’d buy for my portfolio of UK shares is AstraZeneca. The global healthcare industry is a defensive market. There will always be a need for drugs and vaccines.
Astra is one of the world’s largest pharmaceutical companies, and it’s investing billions of dollars every year developing new treatments. These treatments are protected by patents, which gives it a level of revenue visibility over new products. These are the reasons why I’d buy the stock for my passive income portfolio with its 2.4% dividend yield.
I’ve picked out all three of these businesses because I believe they can continue to grow. However, they could all face challenges. The most crucial one they all face is staying ahead of the competition.
Many companies have failed in the past because they haven’t been keeping their eye on the ball, have returned too much cash to investors, and not spent enough developing new products. Any one of these organisations could make these same mistakes.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.