July saw the inflation rate in the UK dropping. Yet, as it’s still sitting at nearly 8%, August seems like a smart time for investors to begin generating some passive income to help put their money to work.
It’s often believed that a large amount of cash is needed to generate healthy returns. But this isn’t the case. And in fact, over the long term, investing small amounts can see these funds build.
With that said, here’s how I’d use August to create passive income streams that could serve me in the times ahead.
How I’d start
To start, I’d pinpoint my focus on the FTSE 100. The index experienced a revival in July. However, the last decade has proved to be a torrid time for the UK stock market. In this period, the Footsie has returned a dire 17%. By comparison, the S&P 500 has risen by nearly 170%.
However, I’m not complaining. As a Fool, I see this as an opportunity. And I see value in UK stocks.
The index also has a variety of companies that pay investors meaty dividend yields. As I write, there are 15 offering yields of 6% or more!
Its average payout is nearly double that of its American counterpart. This year alone, it’s predicted to reward investors with over £80bn in dividends.
The execution
So I’ve targeted the FTSE 100. But where do I go from here? Well, to put my plan into action, I’d target a variety of industries within the UK lead index. By doing so, I ensure my investments aren’t reliant on one company or industry.
The highest yielding stocks are spread across industries such as investment, insurance, housebuilding and tobacco. So I’d focus on these and I like the look of Legal & General and British American Tobacco.
Elsewhere, there are stocks that offer slightly lower yields but still sit above the FTSE 100 average (around 4%).
Stocks in my portfolio that fit this criteria include the likes of Lloyds, which has a yield of 5.6%. And more widely, I like the look of the banking sector, so stocks such as HSBC, which offers a 4.7% yield, are firmly on my radar.
Boosting my returns
There are also a couple of other methods I could adopt to enhance my returns.
Firstly, I’d reinvest my dividends. Over time, this will help me buy more shares, in turn reaping greater rewards and building wealth. Sometimes companies also offer investors incentives to do this, such as discounted stock prices.
Secondly, I’d look to top up my investments with a small monthly payment. By doing this on a consistent basis, I could benefit from compounding.
Next steps
Of course, there are risks when targeting dividend stocks. Mainly, payments can be reduced or cut altogether should unforeseen circumstances arise. We saw this with the pandemic. And the business can do this at any moment.
However, by adopting the methods above I’m pretty confident I could begin to build solid streams of passive income. And I see August a great time to start.
