A side hustle is a way of earning extra income. It’s not a full-time job, but it’s how some people generate additional income.
But as “hustle” implies, earning that income still takes effort. That’s why I prefer to buy dividend paying shares instead. That way I can try to set up regular passive income streams, without having to work for it.
Here are three side hustle ideas I would adapt to use as investment ideas for my passive income list.
Online retail
A popular side hustle is online retail. From crocheting baby clothes to clearing out the loft on Ebay, lockdown has provided an opportunity for a new generation of digital sellers.
Rather than getting dusty sifting through boxes of old possessions, I’d rather just buy shares in a retailer that already has an online success model.
Retailer Next, for example, has long succeeded on the high street. Its online sales have more than doubled over the past decade, to £2.4bn. They now represent 65% of the company’s revenue.
But with a dividend below 1%, Next’s online sales success wouldn’t translate into a strong passive income stream for me. Instead I’d look to a share like Tesco. The company’s online sales surged last year. The shares currently yield 4.3%. So if I invested £1,000 now I’d hope for a passive income stream of £43 each year.
Dividends are never guaranteed, however. One risk to Tesco is that lower profitability of online sales compared to instore ones could hit future earnings.
Educational side hustle
A longstanding side hustle for many people is tutoring. The pandemic has accelerated the shift to online educational delivery.
A beneficiary of such a move is Pearson. The company has refocussed in recent years on education. It has reoriented its delivery methods to increase the role of digital platforms. In the first quarter, sales at its global online learning division grew 25%.
With a dividend yield of 2.2%, I would consider investing in the company instead of getting into online education myself.
But the company did dramatically trim its dividend in 2017. One risk I see is further dividend cuts if profit margins aren’t sustained. Online education is highly competitive and barriers to entry are very low.
Party on
Another popular side hustle is throwing parties. As lockdowns ease, I expect that to come back with vigour.
But instead of managing the logistical hassles of planning a party myself, I’d rather invest in a company that profits from them. Take Diageo as an example. With its portfolio of drinks brands ranging from Guinness to Johnnie Walker, the company does well from a lot of parties. Diageo’s yield is currently 2.1%. The company has grown its dividend annually for over three decades.
That is partly because of its cash generative business. The company revenue is in growth mode, with it reporting this month that performance in its largest region of North America has been “particularly strong”.
Many younger, health conscious consumers are partying without alcohol, however. One of the risks I see investing in Diageo is the possible negative impact on sales and profits that shifting alcohol consumption trends might cause.
