I believe investing in stocks and shares is one of the most accessible ways for investors to generate a passive income. With the rise of low-cost and free trading apps such as Freetrade, investors can start building a passive income portfolio with a lump sum of £100 a month, or less.
And with that in mind, here are five passive income ideas I would acquire for my portfolio with a monthly investment of £100.
Passive income ideas
An investment of £100 a month will not produce a passive income I can live off immediately. Nevertheless, this relatively small initial investment will build up over time, and by reinvesting dividends I receive, I can turbocharge the growth of my portfolio.
The first organisation I would buy for my portfolio is Legal & General. With a dividend yield of 6%, at the time of writing, this company immediately stands out as a high-income investment.
As one of the country’s largest pension and asset managers, Legal has a strong competitive advantage and robust balance sheet. I believe these factors should underpin the group’s dividend. Challenges that could threaten the payout include regulatory constraints and higher interest rates.
These challenges also apply to my second passive income pick, Sabre Insurance. This car insurance company currently offers a dividend yield of 5.7%.
Elsewhere, in the utility sector, I would acquire Greencoat UK Wind and National Grid. As the economy will always require electricity, these companies have a clear defensive nature.
National Grid operates the majority of electricity infrastructure in England. Meanwhile, Greencoat manages a growing portfolio of wind generation assets around the UK.
These businesses are highly regulated. Regulators place limits on how much profit they are allowed to earn and charge to customers. So they may not be able to return as much cash to shareholders as they may like. That is one of the challenges they have to deal with at all times.
Still, both companies offer dividend yields of 5.2%, at the time of writing. That is why I think both stocks are attractive income investments today.
Finally, I would buy Custodian REIT for my passive income portfolio. The real estate investment trust, which owns a diversified property portfolio across the UK in multiple sectors from industrial to retail warehouses, currently supports a dividend yield of 5.1%. I think this could provide my portfolio with a steady income stream from property, and additional diversification. Headwinds the group could face include higher interest rates, which may increase its cost of debt.
In total, the five passive income opportunities I have outlined above offer an average dividend yield of 5.4%. According to my calculations, based on a £100 monthly investment, this portfolio could generate an income of £65 after a year. After 10 years, the pot could be worth £16k, with an annual passive income of £800.
Although there is no guarantee these companies will continue to pay their dividends at current levels, I think these figures illustrate the potential of this passive income portfolio.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Custodian REIT and Greencoat UK Wind. 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.