5 investment ideas for lifelong passive income


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I’m searching for new passive income streams. My primary aim is to diversify my investments, giving me the best chance of stable income during periods of heightened market volatility that will inevitably occur throughout my life.

Here are five passive income ideas I’m exploring today.

1. Dividend Aristocrats

Dividend Aristocrats are companies that have increased shareholder payouts over long time periods. They’re often established industry leaders with low debt and strong profitability.

Good examples from the FTSE 100 include consumer defensive stock British American Tobacco, healthcare firm GSK, and financial outfit Legal & General Group. They yield 6.6%, 6.8%, and 10.4%, respectively.

Admittedly, too great a focus on such stocks carries risks. For instance, my portfolio might have low exposure to certain sectors like technology. I might also neglect better capital growth opportunities elsewhere in my quest for regular dividend income.

Nonetheless, as passive income generators that have a good chance of withstanding recessions, they’re a great place for me to start.

2. High-yield dividend stocks

I’d also buy high-yield dividend stocks. Admittedly, unusually high yields often result from huge share price falls, which could signal trouble for a company’s bottom line. As dividends can be slashed at any time, I view these investments as high-risk plays, but I’m prepared for that.

FTSE 250 commodity trader and miner Ferrexpo is a good example. Its current dividend yield is a whopping 33.6%. The business has significant geographic exposure to Ukraine. Its share price has tumbled 62% over 12 months, largely due to a flash crash following the Russian invasion in February.

Accordingly, Ferrexpo shares would only form a small proportion of my total passive income portfolio.

3. REITs

A good way for me to diversify away from traditional stock market holdings is investing in real estate investment trusts (REITs). Property investments often operate on a different market cycle, and REITs offer passive exposure to this sector.

One REIT I like is British Land, a Footsie constituent that focuses on high-quality retail premises and London offices. It currently yields 6.3%.

Granted, rising interest rates are putting pressure on property prices, which is a headwind for British Land shares. But for me, this is a price worth paying for the diversification benefits.

4. Fixed income funds

Fixed income funds are another great passive income source. They often invest in bonds or other debt securities and pay distributions on a fixed schedule.

A key advantage of bonds is that they tend to be more stable than equities and act as a diversifier. However, there are fresh doubts being cast on this received wisdom. For example, recent chaos in the gilts market has damaged their traditional reputation as a lower-risk investment.

Nonetheless, I still view holding some bonds as a valuable part of my passive income arsenal.

5. Index funds

Finally, I like simplicity. Investing in a tracker fund that mirrors the price performance of an index, such as the S&P 500 or FTSE 100, can produce handsome rewards. Currently, these indexes yield 1.8% and 4.1%.

Indeed, Warren Buffett advises people to invest consistently in a low-cost S&P 500 tracker fund. Although index funds won’t beat the market, I heed the billionaire’s advice. Accordingly, they’re a crucial element in my passive income investing strategy, even though individual stock picking is my main focus.

The post 5 investment ideas for lifelong passive income appeared first on The Motley Fool UK.

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Charlie Carman has positions in British American Tobacco. The Motley Fool UK has recommended British American Tobacco, British Land Co, and GSK plc. 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.

Motley Fool UK 2022

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