Generating buckets of cash streaming into my bank account through passive income has definitely made me a happier investor. The lack of effort required to maintain this position is certainly one of the best things about it.
I am, at heart, quite a stunningly lazy man. I’m happy to do the research at the start, of course. I don’t mind digging deep to find the right dividend-paying companies. But once I’ve made my choice and set up regular investments into my Stocks and Shares ISA? I want my investments to take care of themselves.
Then I can sit back and cream off the profits without lifting a finger.
In this article I’ll explain how I started, and — with the benefit of hindsight — what I’d change in order to make passive income faster and more profitably.
The passive income promise
It has made a huge difference to my portfolio to have dividend-paying income stocks contributing passive income.
I make sure that every month I’m reaping the benefits of tying my progress to companies with proven revenues and dividend payouts over a long period of time.
I would swerve away from young companies when picking dividend stocks. I think it’s the longer-standing companies that offer the best opportunities to boost my portfolio and provide lucrative passive income.
Step one, two, three
The first thing I would do if I was starting all over again is to simply save more money. Once I began setting aside £100 a month, it became clear that I didn’t actually need to hold all that capital as cash. In today’s near-zero interest rate environment, my hard-earned money is losing value every day it rots away in my current or savings account.
High-yield dividend stocks and shares, by contrast, offer a much better rate of return. Greater than investing in real estate, fine wine, or classic cars, that’s for sure.
And the benefits of a passive income also create compound gains, too. This is the second thing I’d change and a critical point I didn’t really understand when I started investing.
Reinvest for success
Holding on to stocks that pay out dividends year after year means I can increase my shareholding in that company, if I choose to. Instead of immediately taking dividends out of my account as income? I’d start off by reinvesting every dividend payment to buy more shares. Then the proportion I can take out as dividends in future increases.
The final thing I’d do if I had my time again would be to broaden my focus. Now I see that if I had picked traditionally defensive companies selling household staples, tobacco or defence prodcuts, I might have been able to grow passive income faster. This point is especially true now with the global economic outlook so uncertain in so many sectors.
With dividends now returning to most FTSE 100 companies my choices are much better than they were six months ago. Today I’d be looking at the likes of Imperial Brands, BAE Systems, or Unilever to deliver the passive income I require.
TomRodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Unilever. 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.