Generating passive income’s a common financial goal today. Across Britain, people are looking for extra sources of cash flow.
The good news is that it’s never been easier to achieve this goal. With that in mind, here are some passive income investment ideas to consider for 2025.
Investment funds and ETFs
Without doubt, one of the easiest ways to generate extra cash flow today is to invest in an income-focused investment fund. These generally invest in a range of dividend-paying companies and pass on the dividends to investors in the form of income distributions.
One example of such a fund is the Vanguard FTSE All-World High Dividend Yield UCITS ETF. This currently offers a yield of around 3%, meaning that an investment of £10,000 generates annual income of around £300.
That’s not the highest yield out there, but this fund tends to generate solid long-term capital gains too. Over the last five years, the share price has climbed around 20%, meaning investors have enjoyed total returns of close to 8% a year.
Investment trusts
Putting money into investment trusts can also be a good way to build an income stream. These are quite similar to funds as they offer broad exposure to the market.
One example of a trust that’s income-focused is Merchants Trust (LSE: MRCH). It aims to deliver a high and rising income (along with some capital growth) and currently offers a yield of around 5%.
It’s worth noting that this trust is one of the Association of Investment Companies’ Dividend Heroes. This means it has increased its income payout every year for at least 20 years.
Some of the top holdings in this trust’s portfolio include British American Tobacco, GSK, Shell, Barclays, and Rio Tinto. All of these stocks are regular dividend payers.
Now, it’s worth noting that the while the yield here’s high, the trust hasn’t delivered much in the way of capital gains in recent years. Over the last five years, for example, the share price has gone nowhere.
This is a good example of why it’s important to look beyond an investment’s yield and focus on total returns. Just because a product has a high yield doesn’t mean it will be a fantastic long-term investment.
In this case, many of the stocks it owns haven’t done so well over the last five years as they operate in structurally-challenged industries such as oil and gas and tobacco. This trend could continue.
Individual dividend stocks
Finally, investing in individual dividend stocks can be a great way to generate extra income. This approach is riskier than investing in a fund. That’s because every company has its own risks. But the yields on offer can be attractive.
HSBC, for example, is currently forecast to pay out 64.5 cents per share for the 2025 financial year. Given that its share price is 782p today, that translates to a yield of about 6.7%.
M&G, meanwhile, is currently expected to pay out 20.7p per share for 2025. That equates to a yield of about 10.4% at today’s share price.
As I said though, investors need to factor in company-specific risks with stocks like these. With individual stocks, share prices can fall 10%, 20% or more if company results are poor.
So it’s crucial to build a diversified portfolio to manage risk.
