Here’s how I’d invest £100 each month to earn wealth-generating passive income from three diverse high-income shares.
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Earned income is great. But unearned passive income works for me even when I’m sleeping. And getting it is one of the keys to building long-term wealth for many people.
For me, stocks and shares are one of the easiest ways to generate passive income. I see businesses as active beasts working hard on my behalf when I own some of their shares. Enterprises can build value by increasing their assets and earnings. And many of them give some of their gains to shareholders via dividend payments.
However, it’s worth me bearing in mind that such happy outcomes don’t always happen. Sometimes businesses can lose value if their earnings slip. And that can result in the double whammy of a falling share price and declining dividend payments.
That’s why it’s important for me to choose my investments carefully after doing my own research. But, regardless of the risks, I’d be keen to invest £100 a month into dividend-paying shares. And I’d aim to hold them for the long term.
For example, I’m keen on trading and investment platform provider IG Group (LSE: IGG). With the share price near 802p, the forward-looking dividend yield is just above 6% for the trading year to May 2024.
City analysts’ estimates can prove to be inaccurate. But the company has a multi-year record of consistent shareholder payments even through the pandemic. And I’m encouraged by the optimistic tone in July’s full-year results report.
The company delivered some decent trading figures. And the directors restated their determination to build on the recent growth of the business. They also committed to an ongoing progressive dividend policy. And that means the company will aim to raise its dividend a little each year. Although such outcomes are never certain because all businesses can run into operational setbacks from time to time.
But I reckon the business enjoys solid cash inflow from its activities. And an ongoing share buyback programme is in full swing alongside dividend payments. The directors said they expect to reward shareholders using “around 50% of adjusted profit after tax each year.” And that figure will likely include dividends and share buybacks.
I also like the look of Renewables Infrastructure. The company invests in operational assets that generate electricity from renewable energy sources. And it focuses mostly on wind farms and solar photovoltaics (PV) parks.
With the share price near 143p, the forward-looking dividend yield is around 4.8%. And I reckon that’s a potentially stable income to collect from the modern-day energy sector. However, there are some risks. For example, costs could escalate as infrastructure assets age. And that could squeeze cash flow and profits making it harder for the company to pay shareholder dividends in the future.
But I’d diversify my passive income further by investing in smoking products company British American Tobacco. The company operates a stable cash-generating business. But the industry faces keen regulatory scrutiny and that could lead to difficulties in the future.
However, the company is working hard to develop turnover from less harmful products than cigarettes. And with the share price near 3,529p, the forward-looking dividend yield is around 7% for 2023. I think that’s attractive.
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
Kevin Godbold has positions in British American Tobacco and IG Group Holdings. The Motley Fool UK has recommended British American Tobacco. 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.
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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.
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