Passive income is one of the easiest ways to build wealth, mainly because you don’t actually have to do any work for it. The most recent stock market crash has created an extensive collection of high-quality dividend-paying stocks that can build your wealth – even if you don’t have any savings.
How to turn coffee into passive income
Traditionally, passive income was achieved by buying bonds or placing cash into a savings account. However, with interest rates being near zero, dividends from stocks have become the best option today, in my opinion.
To start earning dividends, you first need to own some shares, which requires a bit of cash. This often appears as a barrier to entry for many people. However, what if I told you that this barrier is more like a gate that can be opened by skipping your morning coffee?
The average price of a coffee in the UK is around £2.80. That may not seem like much, but it adds up to £1,022 per year if you have a cup every day. This is sufficient to start building your passive income portfolio, and I’d move it into a tax-efficient account, such as a Stocks & Shares ISA, so you keep 100% of your earnings.
Dividend stock opportunities in 2021
The pandemic has created quite a bit of disruption for most businesses, but not all of them. There are many high-quality dividend-paying stocks whose shares have dropped despite the business being largely unaffected by the pandemic today. Therein lies the opportunity to buy these shares at a bargain price.
Stocks like PayPoint and Anglo Pacific Group yield exceptionally high dividends of 11% and 7% respectively. Typically such high dividend yields are a warning sign, but for these two businesses, I believe it’s quite the opposite.
PayPoint is a payments processor for retailers and uses cloud technology to provide real-time sales analytics. The move towards a cashless society makes its card-based payment solution even more valuable with each passing day. As such PayPoint has become my personal favourite source of passive income.
Anglo Pacific is a mining company that doesn’t actually do any mining. Instead, it provides funding to develop mining sites for other companies like Rio Tinto and BHP Group. In exchange, it receives royalties in the form of minerals dug up from the ground. The demand for precious metals for batteries and electric cars is only getting higher, making Anglo Pacific a lot richer.
Is passive income the key to financial freedom?
If I invested my coffee money equally into PayPoint and Anglo Pacific Group, I would earn around £51 passive income in the first year. Not much, but thanks to the magic of compound interest, that free money would quickly grow.
Five years later, the initial £51 becomes £510. While that’s certainly not enough to quit my day job, after 30 years, I would have amassed £154,900. And my annual passive income would have increased to just under £12,000, just from saving £2.80 per day.
Zaven Boyrazian owns shares in PayPoint and Anglo Pacific Group. The Motley Fool UK has recommended Anglo Pacific and PayPoint. 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.