Looking to finally set up some passive income streams this year?
It is something that a lot of people think about, but fewer actually put into action.
A truly passive passive income plan need not take much effort. It does not require a lot of anything, including money.
Backing proven businesses
One baffling element of many so-called passive income ideas is that they involve people getting into a line of business in which they often have no experience.
I see two problems with that.
One: it is not passive. Two: that sort of work might not be the right fit for someone’s talents or passion.
The thing is, there are already lots of large blue-chip companies with proven business models that are highly profitable. Many even pay some or all of those profits out to people who invest in their companies by becoming shareholders.
That is in the form of dividends. FTSE 100 companies alone pay out well over £1bn per week on average in dividends.
So, rather than reinventing the wheel, I think it can make sense for a passive income hunter to hitch their wagon to some proven businesses.
Dividends can be lucrative, for no work
A proven business can run into unforeseen difficulties, of course. Any company can decide to stop paying dividends as it chooses.
That explains why I think a savvy investor, even on a small budget, will spread their portfolio of passive income shares across a few different companies.
When things work well, dividends can be lucrative.
For example, right now the FTSE 100 yields 3.1% but I think an investor could comfortably target a 6% dividend yield while sticking to proven blue-chip businesses.
This means, that for every pound they put in today, the investor will hopefully earn 6p of passive income this year – and every year while they hold the shares, potentially for the rest of their life.
Watching the pennies turn into pounds
While a sixpence can be a welcome surprise in a Christmas pudding, it does not exactly sound like the stuff of passive income dreams!
Remember, though, that that was just from a single pound, in a single year.
Say someone invests £5 day. In a year that would add up to £1,825.
At a 6% yield, that would mean almost £110 of passive income annually.
They could choose to reinvest (compound) dividends. Investing £5 a day and compounding it at 6% annually, it should be worth over £24k after a decade.
At a 6% yield, that could generate around £1,443 of yearly passive income.
Choosing an investment vehicle
Of course, the investor needs a practical way to do this.
It can pay to compare share dealing accounts, Stocks and Shares ISAs and trading apps.
An income share to consider in 2026
One dividend share I think investors should consider for its passive income potential is British American Tobacco (LSE: BATS).
The Lucky Strike manufacturer has grown its dividend per share annually for decades – and aims to keep doing so. It yields 5.8%.
With its strong brands, hugely cash generative business model and global distribution network, I see ongoing dividend growth potential here.
But a key risk is declining cigarette usage rates. British American’s cigarette sales volumes are falling sharply and may keep doing so.
