One of the strategies I am using this year to generate extra income is putting money into dividend shares. I like that approach for a few different reasons. It does not involve working.
It potentially lets me benefit from the success of proven companies. I can also tailor it to the amount of spare money I have. That varies, but here is an example of how I could use this approach by setting aside £3.50 each day to buy income-generating shares.
Saving money to invest
This plan does not require money upfront. But it will take cash to buy shares. So I put aside money on a regular basis. Putting aside £3.50 each day seems like an achievable target. While it may sound like a small amount, over the course of a year that would add up to over £1,200.
I would put the money into a share-dealing account, or Stocks and Shares ISA, so it was ready to invest as soon as I wanted.
Shares and dividend generation
In my approach, I would hope to earn money from companies in the form of dividends. Not all firms pay those however.
So I would focus my search on companies that have a consistently profitable business model I expect to endure in coming years. For example, I think demand for consumer goods will remain high. Within that field, companies including A G Barr, Britvic, Diageo, Imperial Brands, Reckitt and Unilever own unique brands that can help them charge a premium price for their products.
Those companies all pay dividends at the moment, making them a possible source of extra income for me. But will that continue in future? Each faces risks, from changing consumer tastes to cost inflation. So I would weigh the risks of each and the potential rewards, relative to the share price. That can help me choose which ones, if any, are suitable for my portfolio.
Holding more than one consumer goods company in my portfolio would help me diversify, but I would also make sure I bought shares in different business sectors. That would help reduce my risk if one of them performed worse than I expected.
Extra income for 2023 – and beyond
If I started buying shares now, I would hopefully begin to earn dividends in coming months.
At first, those may be modest. For example, saving £3.50 a day for one year then investing it in shares with an average dividend yield of 5% should earn me around £64 in annual dividends. But if I kept saving and buying more shares, hopefully my extra income streams would grow as my portfolio got larger.
If a share pays dividends, I will receive them for as long as I own that share. So an investment I make today could still be generating money for me five, 10, or even 25 years from now.
£3.50 may not sound like much. But if I use that money smartly each day, I think it could help me improve my long-term financial position.
