Here’s where I’d invest to get a monthly passive income

Rupert Hargreaves outlines the investment strategy he is pursuing with the goal of generating a monthly passive income for life.

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.

positive mental health woman

Image source: Getty Image

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.

Investors could use many different assets and strategies to generate a passive, monthly income. Some of these require almost no effort, while others can be a bit more challenging.

Many investors have turned to buy-to-let property in the past, but this is not without its problems. Rental properties can be expensive to maintain, and it may only take one bad tenant to eliminate profits. Owning a small business is another strategy, although this does require additional time and effort. That being said, it can be a highly lucrative strategy if done right. 

However, the approach I would use to generate a monthly passive income is buying UK shares. By following this strategy, I believe I can generate a passive income while investing in the businesses I use every day. There may also be the potential for capital gains in the long term. 

Passive income investments

Unlike other passive income strategies, by acquiring a diversified portfolio of UK shares, I think I can build a steady, growing income from some of the world’s largest businesses.

I would target a certain type of company for an income portfolio. Many of the corporations listed on the London stock market offer dividends, but not all of these businesses are worth buying in my opinion.

Avoiding companies with the highest dividend yields is usually a good place to start. A higher than average dividend yield is usually a sign the market does not believe the payout is sustainable. 

Instead, I would focus on companies with average level dividend payouts and, perhaps more importantly, a high level of dividend cover. In my opinion, businesses in defensive sectors also make the best dividend investments. Two great examples are pharmaceutical groups GlaxoSmithKline and Hikma

Other companies that I would consider buying for a passive income portfolio include financial services group IG and mining businesses BHP and Rio Tinto

Diversification

A quick way to build a diversified dividend portfolio is to buy an investment trust. I’m a big fan of investment trusts and believe they make the perfect passive income investments.

The City of London Investment trust is an excellent example of why these vehicles are excellent income investments. It currently offers a dividend yield of more than 5% and has a track record of increasing its payout every year for the past four decades. 

Using investment trusts such as City of London, as well as a diversified portfolio of UK shares is, I believe, the best way to generate a monthly passive income. Buying investment such as those listed above is relatively straightforward and, unlike buy-to-let property, does not require tenant management. All these companies are managed by experienced individuals, who can do the work on behalf of investors. All one has to do is sit back and watch the money roll in. 

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Hikma Pharmaceuticals. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »