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Passive income ideas I’d use for £20 a week

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Passive income ideas can be easy to find. But I find they are not created equal.

For example, many involve a lot of effort. So I don’t really see them as passive. Others simply don’t produce much income.

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Instead of dabbling in those sorts of passive income ideas, I prefer to invest a small amount of money regularly in a Stocks and Shares ISA. I target shares paying dividends to provide a source of passive income.

Here are some passive income ideas I’d use for just £20 a week.

Buying into products I use

Sometimes there’s a product I really like. It makes me think it could be an attractive business to own.

Take Guinness for example. The iconic stout is in a league of its own. While there are other stouts and porters, I believe Guinness has a unique brand image and loyal following. That gives its owners – listed company Diageo (LSE: DGE) – the opportunity to sustain or even improve profit margins. It also suggests a long future for the brand.

Diageo’s dividend yield is about 2.2%. That isn’t massively attractive to me, but it would be income. Say, for example, I put away £20 a week for a year in Diageo. That would give me over £1,000 to invest. I’d expect £22 in dividends each year in future. 

Interestingly, Diageo has raised dividends annually for over three decades. That could suggest higher future income, though dividends are never guaranteed. They can be cut or cancelled at any time.

Other risks include a decline in alcohol consumption by health conscious consumers, and increased competition from new products like hard seltzers.

High-yield passive income ideas

I’d try to reduce my risk by diversifying across multiple shares. Saving £20 a week, it might take some time to do this but as soon as I could, I would.

Looking for passive income ideas, I’d also scan high yielding shares. These could produce a more substantial passive income because their dividend payouts are higher. For example, tobacco stocks often offer higher yields than the wider market.

But a high-yield can also be a warning signal. For example, maybe the market is pricing in risks. For tobacco, that could be a decline in smoking or future regulatory tightening. For high-yielding miners, it could be the anticipation of cyclical price falls, for example.

So there are risks in a tobacco stock like Imperial Brands. Nonetheless, with a yield of 8.9%, it is one of my favourite passive income ideas.

Long-term focus

Whether it’s a possible £22 a year from Diageo or £89 a year from Imperial Brands, the numbers might sound fairly small at first.

But part of the reason I am attracted to putting £20 a week aside to generate passive income is the cumulative effect. £20 a week isn’t a massive amount for many people. But over time, it adds up.

If I had invested in Diageo 30 years ago, for example, I would have enjoyed growing passive income from that holding every year since – even if I didn’t put any more money in after the first year. If I had kept putting aside £20 a week, the passive income would have been even greater.

That won’t necessarily be true in future. But with the right passive income ideas to hand, I am hopeful I can turn £20 a week into a lifelong passive income stream.

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christopherruane owns shares of Imperial Brands. The Motley Fool UK has recommended Diageo and Imperial Brands. 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.