The idea of sitting back in the August sunshine earning money without having to work for it sounds appealing. But that is not just a pipe dream. Like millions of other people with even a small amount of money to invest, I expect to earn passive income this month and long beyond, thanks to owning a portfolio of blue-chip FTSE shares.
Simple passive income idea
Why do I like owning shares as a way of generating unearned extra income?
I think it really is easy. Some supposedly passive income ideas actually involve a fair amount of ongoing work, often for an uncertain return. I do some research to buy shares and check their business performance from time to time but, overall, the effort required is minimal.
While dividends are never guaranteed, I hope that if I build a diversified portfolio of quality shares I can estimate a possible range of dividend income with a decent likelihood of success, in the absence of some unforeseen event.
Lots of companies pay dividends. By buying into blue-chip FTSE names like Vodafone and Legal & General though, I can benefit from owning a slice in well-established, proven businesses with unique assets and sizeable existing customer bases already in place.
How I’d start
Even if I did not own any such shares, I would start buying them today by putting aside some money regularly to invest.
How much would depend on my own financial circumstances. In fact, that is another thing I like about owning highly liquid FTSE shares as passive income ideas. I can buy or sell them whenever I want, in large or small quantities.
Usually, buying or selling involves some charges and the proportional impact of those could be higher if I invest just a very small amount. Still, by comparing the fees and charges of different share-dealing accounts, I should be able to find one that suited my personal circumstances.
Setting expectations
How much dividend income I would earn depends on the amount I invest and the average dividend yield of my portfolio.
Yield is basically the annual dividend income I would earn from a share as a percentage of what I pay for it. The FTSE 100 has an average dividend yield of under 4% at the moment. But some FSTE shares yield more. Vodafone’s is 10.8%, for example, which means I ought to earn £10.80 in dividends yearly for every £100 I invest in it today.
Remember though, dividends are never guaranteed. Vodafone has a strong brand and lots of customers, but it also has a lot of debt. That could lead it to cut its dividend at some point. So rather than putting all my money in a single FTSE share, I always diversify across a range of choices.
I also focus on finding what I think are brilliant shares rather than settling for mediocre ones. I aim to buy when I think the shares are attractively priced and can offer me a good yield.
