3 diverse passive income ideas I’d use

Hoping to increase his earnings without working harder, our writer discusses three passive income ideas he’s considering.

| More on:

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.

Passive and Active: text from letters of the wooden alphabet on a green chalk board

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

One of my favourite passive income ideas is buying shares in the hope they pay me dividends.

Dividend shares as passive income ideas

Dividends are never guaranteed, but mixing my holdings between different companies means that even if one cuts its payout I can still receive passive income from others.

Here are three UK dividend shares from different industries I would consider buying for my portfolio.

British American Tobacco

One dividend share I already own and would be happy to keep buying is British American Tobacco (LSE: BATS).

Tobacco is a business that carries risks for manufacturers as well as their customers. From declining cigarette purchase rates hurting sales volumes to the potential costs of a withdrawal from the Russian market, the Lucky Strikes owner faces a number of challenges.

But I think the risks are already factored into the company’s share price. It offers a 6.7% yield. The company has raised its dividend annually for over two decades. Although the most recent raise was small, British American has also started a sizeable share buyback programme. That suggests management is confident in the business outlook. The company has also been making progress in reducing debt.

With its strong cash flows, portfolio of premium brands and pipeline of non-cigarette products, I continue to see British American Tobacco as an attractive passive income pick for my portfolio.

Direct Line

Insurer and financial services provider Direct Line (LSE: DLG) is another of the passive income ideas I would consider adding to my portfolio. It currently offers a yield of 8.3%, so if I invested £1,000 in it today I would hope to get annual passive income of £83 in future.

Insurance is not typically a high-growth business, but it is pretty resilient. Vehicle owners are obliged to have insurance. Many homeowners keep insuring their properties even when premium prices go up. That makes for attractive economics in the insurance industry. Direct Line’s iconic brand can help it benefit from those economics. That can enable it to reward shareholders with dividends.

There are risks, too. For example, shortages have pushed up the cost of secondhand cars. That has made it costlier for Direct Line to settle some claims, which could eat into profits. Over the long term, though, I reckon the company’s proven ability to price the risks profitably could make it an attractive dividend share for me to hold in coming years.

Assura

Shares in healthcare property landlord Assura (LSE: AGR) have fallen 7% over the past year. Along with a growing dividend, that means the company currently offers a yield of 4.4%.

I think Assura is positioned to benefit from strong demand for the sorts of properties it operates. From local clinics to ambulance depots, I expect resilient demand to support future profits.

One risk here is share dilution to fund ambitious expansion plans. That could lower earnings per share if the company’s growth is not well-managed.

Assura is not what I would call an exciting business. Actually, that is partly why I like it. The business model is proven and it works. I think Assura’s market niche could support profitability in the coming years. The dividend appeals to me and I would consider adding the shares to my holdings.

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.

More on Investing Articles

Investing Articles

Here’s what dividend forecasts could do for the BP share price in the next three years

I can understand why the BP share price is low, as oil's increasingly seen as evil. But BP's a cash…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

This FTSE 100 Dividend Aristocrat is on sale now

Stephen Wright thinks Croda International’s impressive dividend record means it could be the best FTSE 100 stock to add to…

Read more »

Investing Articles

3 shares I’d buy for passive income if I was retiring early

Roland Head profiles three FTSE 350 dividend shares he’d like to buy for their passive income to support an early…

Read more »

Investing Articles

Here’s how many Aviva shares I’d need for £1,000 a year in passive income

Our writer has been buying shares of this FTSE 100 insurer, but how many would he need to aim for…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

1 incredible growth stock I can’t find on the FTSE 100

The FTSE 100 offers us a lot of interesting investment opportunities, but there's not much in the way of traditional…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With an £8K lump sum, I could create an annual second income worth £5,347

This Fool explains how a second income is achievable by using a lump sum, investing in stocks, and the magic…

Read more »

Investing Articles

Here’s what dividend forecasts could do for the BT share price in the next 3 years

With the BT share price down so low, the dividend looks very nice indeed. The company's debt is off-putting, though.…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

28% revenue growth per year and down over 20% in price! Should I invest in this niche FTSE 250 company?

Oliver says this FTSE 250 company has done an excellent job bringing auctioning into the modern world. Will he invest…

Read more »