Image source: Getty Images
Another way to generate income is to start a small business – a hustle – that does not require money upfront but helps you earn money without working for it. The problem with that approach, as I see it, is that building such a business is often involved a lot of work. It’s just nonsense!
On the contrary, many people put others money to work for them to earn more money. So income doesn’t work – but it needs money.
Fortunately, that capital requirement can be low. Here’s what someone can aim for for just £3 a day.
What are the ingredients in this recipe?
Three quid a day may not sound like much, but it’s a start.
Earning income by building a portfolio of dividend stocks depends on three factors. One is to have money to invest.
That £3 a day will start to add up. Of course, one of the things I like about investing in stocks as an income source is that the plan can be tailored to an individual’s financial situation.
The second factor is time. The longer an investor holds, the more money there is to invest. That can translate into more revenue.
The third factor is what that money is for. This can be determined by the dividend yield of the portfolio. The yield is basically what is earned from the shares each year, expressed as a percentage of the cost of the shares.
Being a smart investor
However, that doesn’t mean it’s a good idea to simply chase the highest yield. After all, benefits are never guaranteed. A large yield can be a red flag that the City expects the company to reduce or withdraw its dividend.
That explains why it makes sense to both diversify a portfolio and carefully choose which stocks go into it. It also makes sense to try and keep transaction costs and commissions low by choosing the right share trading account, Stocks and Shares ISA or trading app.
Let’s say someone invests £3 a day for 10 years, and reinvests the profits over that period, before taking them as income for 10 years, without even investing another penny. At a 3% yield (what i FTSE 100 current offer), that should lead to an annual income of around £377.
A 5% yield would mean that amount was around £689. Or, at 7% yield, £1,059.
One assignment to consider
I’ll stick with that 5% yield as one that I think is eminently attainable in today’s market while I stick with blue-chip stocks.
For investors without ethical objections to tobacco allocations, one strong dividend payer I think is worth considering is FTSE 100 a member British American cigars (LSE: BATS). It has grown its dividend annually for decades. The current yield is 5.8%.
In the last five years, the price has grown to 52%, but despite that, I still think it is reasonable at 12 times the money.
The decline in tobacco use is a threat to the firm’s revenues – which have been declining in recent years – and profits. But its premium product portfolio delivers Lucky Strike The owner’s pricing power to try and reduce sales prices is declining.
It is always a great money generator. That could help support the dividend in the future.
