December is one of my favourite months of the year. However, it’s followed by January, which is my least favourite month. As the start of the year hits me hard, I like to distract myself with some intensive research and some stock picking. I’m always looking for ways to make my life easier. Part of this relates to making passive income. If I can build up a second form of income via investing then it can help me enjoy 2023 (and years beyond that) a lot more!
Hitting the ground running
I don’t have to wait for long to start picking up some income. The easiest and quickest way is for me to buy some more dividend stocks, before they go past the ex-dividend date. This is the last date when I need to be a listed shareholder in order to receive the upcoming payment.
Within the next month, there are ex-dividend dates for some well-known names including SSE, Imperial Brands and BT Group.
Though I don’t have the free cash to buy these stocks now, I’ll still have ample opportunity in Q1 to add different income shares to my portfolio.
A risk is that I might miss the ex-dividend date of a stock I want to buy, in which case my income potential stalls until the next declared payment.
Thinking for the next decade
What if I want a strategy to help me in 2023 but also for years beyond that? I like to tweak the above by making one simple difference. Instead of taking the dividend payments and spending them, I’m going to use the money to buy more shares.
This helps me next year as I’m setting aside money and growing my investment pot. But it also helps me for the long term as the reinvestment of the dividends gives me a larger future portfolio.
For example, if I invest £300 a month for the next decade but take out the dividends and spend it, I’ll have a pot worth £36k at the end. I’m assuming for the moment that there’s no capital gain or loss on the share price. Now, if I leave the dividends (with an average yield of 4%) to compound, my pot would be worth £44.6k.
Passive income from growth stocks
My final idea is to make use of trimming profits from growth stocks. Such companies haven’t done well this year. But this actually makes them more attractive for me now, given the share prices are much lower.
If we do get an economic recovery next year, or if the recession isn’t as bad as people are planning for, I should feel more comfortable buying riskier growth stocks.
Forecasting an accurate growth rate is difficult. This is a risk when I try and predict whether this strategy makes sense or not.
But if I take the five-year average share price growth of examples such as Amazon (9.8%), Apple (42%), Tesla (111%) and Alphabet (11%), I can see that it can be substantial.
If I invest in UK growth stocks that I like and enjoy similar yields, I can sell a portion of my shares each year corresponding to the profit amount. That way, I’ll always keep the original size of my investment, but be able to reap cash profits along the way.
