Passive income from 9.2% yield stock could cut pressure as costs spike

Passive income is one way to reduce the pressure on families, especially as a new study finds a third of UK tenants have unaffordable rent.

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The real reason I started building passive income was to take the pressure off grinding out work every day.

Relying on a salary — or, in my case, freelance writing — to provide enough pension contributions, is hard enough already.

And the problem is now so bad that middle-class families struggle for a decent living standard even on £60,000 income.

That’s according to a report released in mid-February 2024 by abrdn (LSE:ABDN). It found 30% of private tenants’ rent is ‘unaffordable’. This is defined as more than a third of their total income.

And sky-high rents and mortgage payments from the massive spike in interest rates over the last three years are somewhat to blame.

Binary choices

The study’s author, Professor Donald Hirsch, writes that UK families are faced with a difficult choice.

Option one is providing for the future, he says. Option two is “having enough disposable income for a decent living standard today”.

The thing about dividend income is that I can choose to take it now, or reinvest it for the future.

For shares I buy in a Stocks and Shares ISA, it’s a case of ticking a box online or in an app.

And investors don’t pay any additional tax on dividend income in a Stocks and Shares ISA. That’s the kind of information I wish I had to hand 20 years ago.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Alternative options

I wrote for The Motley Fool in January 2024 how I’d built £4,000 of passive income starting from nothing. And that figure is rising every month, given that I compound my gains from dividend-paying company shares.

The FTSE 250-listed asset manager mentioned above, abrdn, looks to me like one of those potential dividend-payers.

With a 9.2% yield and potential for a rising share price ahead, it’s certainly on my investing watchlist.

If I was to take a position here, I’d try to buy and hold as long as possible.

Interactive

abrdn actually owns Interactive Investor, one of the UK’s largest Stocks and Shares ISA providers. More people are coming around to the idea of low-cost investing for passive income. So this makes for a profitable revenue-generator for the parent company.

Today, 21 February 2024, abrdn shares are trading at around 160p per share. If I was to put my £4,000 of passively-earned income into abrdn shares? I’d own around 2,500 shares.

With today’s 9.2% yield, or 14.6p per share in dividends, I’d be receiving annual payments of around £200. It’s not a king’s ransom by any means. But it would make the cash I have work harder for me.

Summing up

With so much pressure on families to keep up a decent living standard it’s no wonder people feel like they are falling behind. But with a few simple adjustments, I believe passive income is closer than many people think.

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.

Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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