History shows us that investing in UK shares can be a great way to generate passive income streams. I myself have created a diversified portfolio of dividend stocks to provide a steady flow of income. The beauty is that one doesn’t have to stump up a fortune at the beginning to start creating wealth with income shares either.
Building wealth with £5
Let’s say that I have £5 in change sitting at the bottom of my pocket when I come home. That’s less than a cinema ticket or a good bottle of wine. If invested wisely this small sum could make a huge difference to my wealth levels over the long term.
If I were to put £5 aside regularly I’d have about £152.08 sitting in my piggy bank after one month. Over the space of a year this amount would rise to £1,825. With this sort of handy sum I’d have a wide choice of options to try and create wealth with UK shares. Investing that in stocks with 3.9% dividend yields could make me a yearly passive income of around £71.
Two passive income stocks I’d buy
This clearly wouldn’t be enough on its own to make me financially independent. However, sensible share investing involves taking a long-term view. And by regularly saving and investing that £5 a day over a number of years I could build some huge passive income flows. By sticking to this plan I could turn that £71 annual passive income in year one into £710 by my tenth year of investing.
Of course I can make a higher passive income if I buy dividend stocks with yields above that 3.9% FTSE 100 average. Here are a couple of passive income stocks I’d buy today because of their market-beating yields:
ContourGlobal of the FTSE 250 develops, acquires, and runs power plants all over the globe. Like other utilities shares, then, the essential services it provides generate strong and steady cash flows. The key to passive income investing is to find dividend stocks that can pay decent dividends over the long term and not just today. And this particular UK share sits firmly in this stable.
I like ContourGlobal in particular because of its increasing focus on renewable energy. Its a strategy could pay off handsomely as the world moves away from fossil fuels. Profits at the dividend stock could take a significant hit if project delivery issues occur. However, I believe the potential rewards of my owning it far outweigh the risks. The forward dividend yield at ContourGlobal sits at 7.9%.
FTSE 100-quoted Admiral Group is one of the biggest names in the general insurance business. This makes it one of the go-to brands with British consumers. I also like Admiral’s focus on the car insurance market, a segment which is particularly robust during economic upturns and downturns. Driving with insurance is a legal requirement, after all. This gives Admiral the earnings stability and the confidence to pay big dividends year after year.
Admiral’s yield for 2022 sits at a meaty 7.5%. I’d buy the business despite the threat that weather-related claims pick up considerably due to climate change.
The post How I could make a passive income with just £5 a day! appeared first on The Motley Fool UK.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group. 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.