Got a spare £5 a day? Start the journey to financial freedom with passive income
Iâm always mulling over new ways to build a steady and reliable passive income stream. Whether itâs sitting pretty on the sofa, walking the dog or simply sipping a pint, extra cash means more free time to do as I please.
One popular and increasingly accessible way to do this is via small, consistent investments in dividend-paying shares. By cutting out just one or two small expenses a day and saving £5 to invest, the journey towards financial freedom could be within reach.
Plus, by slowly reinvesting the dividends over time, the investment could rapidly compound, snowballing into a lucrative chunk of savings.
So how would someone start building such a portfolio? I find it best to pick a mix of both income and growth stocks across various sectors, thereby protecting against a failure in one area.
Here are a few reliable UK stocks to consider.
Primary Health Properties
Primary Health Properties is a real estate investment trust (REIT) focused on community health centres. Regulations require it to return at least 90% of profits to shareholders, giving it a reliably high dividend yield of around 7.5%.
Impressively, its dividend has grown at an average of 3.5% a year for nearly 30 years, offering both income and growth â a rare combo in todayâs market. The risk is that if the UK housing market takes a dip, the companyâs shares will likely be hit too.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Tesco
For those seeking stability, Tesco remains one of my favourite defensive dividend stocks. With a yield of about 3.3%, payouts are well-covered by earnings. Consumer demand tends to stay steady in tough economic periods, making it a reliable income option with consistent dividend growth and pedigree.
Yes, it faces strong competition from other major UK supermarkets but for now, itâs leading the pack.
RELX
RELX (LSE: REL) is an Anglo-Dutch multinational provider of information-based analytics across legal, health, risk and business sectors. Operating for 32 years, annual revenue has grown rapidly to £9.43bn.
It offers only a modest yield of around 2% but its capital growth is where it shines â the shares are up over 100% in the past five years.
That equates to annualised returns of almost 15% a year!
Notably, it also enjoys impressive dividend growth. The full-year payout has increased every year for over a decade, at an average rate of around 9% annually. That kind of consistent growth offers the potential for long-term income expansion.
Naturally, there are some risks, including reliance on cyclical corporate spending and regulatory pressures across its data-heavy operations.
The road to £1k a month in passive income
Consider starting with a lump sum of £5,000, evenly split across five dividend stocks. Then invest an additional £1,825 each year (£5 a day). A decent portfolio could achieve an average yield of 7% and dividend growth of 2% annually.
After 20 years, the pot could potentially grow to around £127,150 (with dividends reinvested), generating approximately £12,780 a year in dividends. Thatâs over £1,000 a month in passive income — just from a small initial investment and regular contributions.
This example shows that financial freedom neednât require large sums or complex strategies — just consistency, patience and smart stock choices. By blending some high-yield stocks with steady growers, a well-diversified portfolio could lead to dependable, increasing income.
The post Got a spare £5 a day? Start the journey to financial freedom with passive income appeared first on The Motley Fool UK.
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Mark Hartley has positions in Primary Health Properties Plc, RELX, and Tesco Plc. The Motley Fool UK has recommended Primary Health Properties Plc, RELX, and Tesco 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.
