£500 to invest this payday? Here are 2 great passive income ideas to consider

It has never been easier to generate passive income from the stock market. Here are two ideas for those with £500 to invest to consider today.

| 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.

Today (31 January) is the last Friday of the month. So, for a lot of people across the UK, it’s likely to be payday. Have £500 to invest this payday and looking to create some passive income? Here are two investment ideas to consider.

Easy cash flow

One of these easiest ways to generate extra cash flow these days is to buy into an income fund. These typically invest in a range of dividend stocks and pass on the dividends collected to investors.

A good example of this type of product (and one that could be worth researching) is the Schroder UK-Listed Equity Income Maximiser fund, which is available on Hargreaves Lansdown and other similar platforms. This is invested in nearly 200 companies and it pays out quite a bit of cash to investors.

Should you invest £1,000 in Aviva 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 Aviva made the list?

See the 6 stocks

Indeed, this fund aims to reward investors with a 7% yield. Now, this isn’t guaranteed (dividends never are). Currently however, Hargreaves Lansdown says the product’s historic yield is 6.87%. That’s attractive relative to what’s on offer from savings accounts today.

Since its launch in December 2020, this fund has performed pretty well overall. Including both gains and income, it has returned nearly 50%.

A risk going forward, however, is that it could underperform the broader stock market. Often, high-yield dividend stocks don’t perform as well as investors are hoping they will.

It’s worth noting that a lot of income funds have both an ‘accumulation’ and an ‘income’ version. The difference here is that the former will reinvest all dividends while the latter will pay them out to investors. So, if one is looking for cash flow now, the income version is the one to go with.

High yields from dividend shares

Another easy way to generate some passive income is to build a portfolio of individual dividend shares. This is riskier than going with a fund because the high level of diversification provided by funds reduces risk significantly. But there can be some big rewards on offer for those willing to pick individual stocks.

Take shares in savings and investment company M&G (LSE: MNG), for example. Currently, they are expected to pay out dividends of 20.7p per share for the 2025 financial year. Given that the share price today is 209p, that translates to a yield of a whopping 9.9%.

Now, as I said earlier, dividends are never guaranteed. And the forecast above is exactly that – a forecast (meaning that it may not be accurate).

And dividend sustainability is not the only risk to consider here. Another is share price volatility. Like a lot of financial stocks, M&G tends to swing around wildly whenever there is some uncertainty in the world’s financial markets. So, one needs to be comfortable with the possibility of capital losses.

I think the stock is worth considering for income, however. I believe the company has a relatively attractive future (people need to save for retirement) and its valuation seems very reasonable today.

Created with Highcharts 11.4.3M&g Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

It’s worth pointing out that many brokers still charge commissions to buy individual shares. And these can eat into one’s returns. If an investor was looking to invest £500 in an individual stock such as M&G, I would suggest going through a broker that offers zero or very low commissions in order to maximise returns.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown Plc and M&g Plc. 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 Dividend Shares

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »

Investing Articles

10% dividend yield! Here’s a FTSE 100 share to consider in April for passive income

This FTSE 100 stock just soared past the 10% yield mark, making it a potentially lucrative option for investors targeting…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »