5 easy passive income ideas I like

Our writer shares five passive income ideas he reckons could increase the money he gets without having to work for it.

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Passive income ideas aren’t always that easy to put into action. But the more work they require, the less passive they really are. That’s why some of my favourite passive income ideas are UK dividend shares I can buy for my ISA. Here are five simple passive income ideas among UK dividend shares I would consider adding to my ISA today.

1. Direct Line

Insurer and financial services provider Direct Line has a yield of 8%, earning it a place on my list of passive income ideas in the financial services sector. With over 14m policies in force, the company benefits from economies of scale. Its iconic red telephone brand should make it cheaper to attract and retain customers. Lower-than-normal levels of motor claims this year could boost 2021 profits.

But there are risks here. Today, the company alerted that rising costs of second-hand vehicles could push up its claim costs.

2. National Grid

A large part of the backbone for Britain’s electricity network is provided by National Grid. That gives the company what investor Warren Buffett calls a “moat”: something that helps it maintain a competitive advantage. In turn that means it can produce profits and fund a dividend which currently sits at 5.2% per year of today’s share price.

That puts National Grid firmly on the list of passive income ideas I would consider buying for my portfolio. But one risk is increased capital expenditure to meet shifts in energy needs. That could hurt profit margins.

3. British American Tobacco

From cigarettes to vaping, British American Tobacco is a company whose strong brands such as Lucky Strike give it pricing power. Falling cigarette demand in key markets risks future revenues and profitability, but for now the cash-cow business enables the company to pay a dividend yielding 8.4%.

Newer formats such as vaping could also help to mitigate the revenue impact of cigarette sales declining in some markets, though so far their profitability is less attractive.

4. Vodafone

Telecom giant Vodafone offers a dividend yield of 6.9%. That’s why it’s one of the passive income ideas I would consider adding to my portfolio. With a strong position in many wealth markets, I think the company’s large network and recognisable brand could help it make healthy profits for years or even decades to come. One concern is the company’s large debt. Servicing that could reduce the money available to fund dividends.

5. BP

I would also consider BP among passive income ideas for my portfolio. The oil and gas major yields 4.6%. I expect energy demand to stay high for a long time. That should benefit BP. If prices slip, it could hurt profits, but after a cut last year, the dividend looks more sustainable than before.

Putting my passive income ideas into action

These five ideas won’t earn me a penny unless I do something with them.

That could be as simple as putting some money into a Stocks and Shares ISA, buying the five shares, and sitting back in the hope of growing my passive income streams.

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.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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.

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