How I’d invest £3,000 in cheap UK dividend shares today to make a passive income

These UK dividend shares could offer a sound means of making a passive income, in my view. I’d buy them as part of a diverse portfolio today.

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Making a passive income from UK dividend shares could be a sound long-term move. The prospect of low interest rates and a likely economic recovery may mean they offer relatively high, and growing, dividend payouts in the coming years.

Of course, there’s never a guarantee that any company will pay dividends in future. Similarly, their share prices could fall heavily at any time. As they did in the 2020 stock market crash.

However, taking those risks into account, these three FTSE 100 shares could offer an appealing income stream. As such, they could be worth buying with £3,000, or any other amount, today.

Making a passive income with UK dividend shares

Rio Tinto may not be an obvious choice when it comes to making a passive income from UK dividend shares. The mining company’s profitability can fluctuate significantly. Especially as it’s dependent on the world economy’s performance. However, the company’s dividend yield of around 5.5%. Add to that its solid balance sheet and the potential for improving operating conditions in a resurgent world economy could make it an attractive long-term purchase.

Unilever could also offer an appealing income stream. Clearly, it’s faced tough operating conditions in recent months that may continue to weigh on its outlook. However, the company’s 3.8% dividend yield could suggest it offers good value for money. Its forecast rise in dividends per share of 5.5% next year may be indicative of its capacity to deliver an above-inflation rise in shareholder payouts.

Tesco is another UK dividend share that could produce a growing passive income. Weak consumer confidence may weigh on its prospects. But the company’s online operations may boost its capacity to pay a higher dividend. The company’s dividend yield of 3.3% isn’t especially high. However, it could offer defensive appeal that makes it a worthwhile income opportunity in the long run.

Building a diverse portfolio to reduce risk

Clearly, buying UK dividend shares to make a passive income comes with much higher risk than other assets. Therefore, purchasing a wide range of companies in a portfolio could be a means of reducing the threat of falling dividends, or declining share prices from a limited number of companies. Diversifying among different industries and geographies could be a prudent approach to take. Certainly, given the current uncertainties present in the world economy.

However, even when those risks are included, dividend stocks could prove to be a sound long-term means of obtaining a worthwhile income compared to other income-producing assets in a low interest rate environment.

After all, a recovering economic performance is forecast in the coming years. This may provide a boost to dividend payouts across a wide range of businesses that leads to a more attractive income return on a diverse portfolio of UK dividend shares.

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.

Peter Stephens owns shares of Rio Tinto, Tesco, and Unilever. The Motley Fool UK has recommended Tesco 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.

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