£9,000 in savings? Here’s how I’d try to generate over £100 a month of passive income

By putting £9,000 into carefully chosen blue-chip dividend shares today, our writer thinks he could earn a three figure monthly passive income in future.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Earning passive income can be as simple as buying shares in proven blue-chip businesses that pay dividends.

Doing that I could hopefully build lifelong and growing income streams, for a single investment now.

If I had a spare £9,000 to invest, here is what I would do to try and target more than £100 in passive income each month, on average.

Should you invest £1,000 in Assura Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Assura Plc made the list?

See the 6 stocks

Getting ready to invest

My first move would be a practical one.

I would set up a share-dealing account or Stocks and Shares ISA then put my £9,000 in it. I would then be ready to start investing as soon as I found some attractive income shares I wanted to own.

Picking an approach

If I did not know about the stock market, I would spend some time learning about important concepts such as valuation.

The next move would be to decide what approach I wanted to take.

As passive income is my objective, I would not need to decide whether to focus on growth or income shares.  But I would still need to make choices like what sectors to focus on (I would stick to areas I knew and understood), how many different companies to buy to keep my portfolio diversified and whether I was willing to invest in low-yield companies with the prospect of high rates of dividend growth.

Quality over yield

The amount of dividends I would likely earn relative to how much I invest (what is known as dividend yield) would in fact not be my priority.

After all, dividends are never guaranteed. So what is a high-yield company today could axe its dividend tomorrow, for example because of changing business circumstances or having a lot of debt.

So my focus would be on finding attractively valued companies with great business models I reckoned could hopefully generate sizeable amounts of excess cash in future that may fund dividends.

Finding shares to buy

As an example, consider one share I recently added to my own portfolio, primarily for its passive income generation potential: Legal & General (LSE: LGEN).

The financial services provider operates in an industry I expect to see substantial, resilient long-term demand. Yes, there will likely be ups and downs along the way. But retirement planning is huge business and likely to remain so.

Specifically, Legal & General’s strong brand, long history and deep customer base all help give it a competitive advantage that has meant it has been consistently profitable in recent years.

A financial downturn could lead to some clients withdrawing funds, hurting profitability. But as a long-term investor I am happy to own the shares.

Reinvesting now to earn more later

With a dividend yield of 8.9%, Legal & General is a passive income goldmine for some investors.

Still, if I invested £9,000 at a more modest (though still high) average yield of 7%, that would earn me £630 in dividends annually. Good, but well below my target.

So I would reinvest my dividends for a decade. That move – known as compounding — ought to mean that, after a decade of compounding at 7% annually, I would be earning average passive income of around £103 each month.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

C Ruane has positions in Legal & General Group Plc. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »