To supplement the stocks that I own for the purpose of capital growth, I like to hold stocks that generate income. In this way, I can focus most of my efforts in trying to generate outperformance on the active side of my investing ideas. The passive-income investing side (once up and running) should require only a little attention to work well for me. Here’s a few ways that I can get dividend stocks to help me out.
A lump sum
The first way I can go about passive income investing in via a large lump-sum investment. For example, let’s say I get an inheritance windfall or have sold my house and am downsizing. This surplus amount can go straight into dividend shares that can offer me regular income.
Making £450 a month this way would be fairly simple. If I assumed I could get an average dividend yield of 6%, then I’d need to make £5,400 a year. To generate this, I’d need to invest a lump sum of £90,000.
This probably isn’t the most popular way to go about passive-income investing, as such events to accumulate a large amount of money in one go are slim. But if this happens to me, it’s definitely a viable way to make things work.
The benefit of this idea is that I get to put all the money to work in one go. The downside is that I’m overly concentrating my focus purely on dividend stocks. A wiser idea in my opinion if I had such a lump sum would be to put half of it in dividend stocks, and use the other half for other ideas.
Passive income investing in chunks
A second way I can get to £450 a month via passive income investing is by buying dividend stocks each month. I won’t be able to generate sizeable dividend income straight away, but it will build up over time.
For example, let’s say I invest £1,000 each month into stocks I am positive on. I’ll assume again that I can get around a 6% dividend yield on average. I’ll also presume that I reinvest any dividends I get paid. In this case, it would take me just over six years to achieve my goal. At this point, my investment pot would be at that £90,000 figure, allowing me to then enjoy the £450 a month on average from passive-income investing.
The benefit of this idea is that I can manage my cash flow better. Putting away a chunk every month is an easier way for me to manage my finances, and puts less stress on it. The downside is that I will need to wait for several years before I get to start enjoying the passive income. I can solve for this by not reinvesting the dividends, but this will lengthen the time by a year and a half.
Whichever way I decide to invest, it’s clear that I can make a success of passive-income investing, and make it work for me.
