3 passive income strategies that aren’t very passive – and 1 that is

There’s no shortage of content on social media promising easy passive income. Flashy posts about people earning while they sleep from businesses that apparently run themselves with little effort.

It sounds tempting. Who wouldn’t want money flowing in while doing nothing? The reality is that a lot of those so-called passive income strategies are anything but passive.

Let’s break down a few of the biggest myths and see where genuine opportunities actually lie.

Passive income myths

Buying a flat and renting it out is another popular way to build income. But it’s not as simple as the estate agents make it look. Void periods with no tenants, costly repairs and rising mortgage rates all eat into returns. Even with a letting agent, landlords often find themselves dealing with unexpected costs and stress. Property can certainly generate income, but it’s rarely as hands-off as advertised.

Side hustles are another option. Whether it’s a blog, YouTube channel or online course, the dream of building it once and letting the money flow in for years is appealing. Drop-shipping often gets hyped as the dream business model. But the truth is, it’s a brutally competitive space with razor-thin margins. Algorithms change, advertising costs rise, and suddenly those easy profits vanish. Many newcomers find out that running a successful e-commerce store is often far from passive.

But in practice, most of these projects require years of consistent effort before they make anything meaningful. Algorithms change and trends move on, so constant maintenance is necessary. What looked like a passive stream often becomes just another job.

What actually works for investors

The boring truth is often the best: dividend stocks. Companies on the FTSE 100 that pay reliable dividends have been rewarding shareholders for decades – without requiring anyone to manage an online store or deal with leaky boilers.

Take Phoenix Group (LSE: PHNX). This giant UK insurer currently offers a dividend yield of around 8% and has increased payouts for 10 consecutive years. A strong and reliable dividend policy is key to any income-based strategy.

Admittedly, it’s unprofitable at the moment, posting a £1.12bn loss in its latest full-year results. But things are improving, with earnings per share (EPS) up 8.5% and forecasts expecting them to reach 56p per share by next year.

Yes, it carries risk. The group has £4.18bn in debt against £1.75bn in equity. A sharp earnings slip could force a dividend cut. But with £307.8bn in assets under management and a decades-long track record, it remains a heavyweight in the insurance space and a popular dividend stock.

Other options include National Grid, which benefits from regulated income supplying essential infrastructure, or a real estate investment trust (REIT) such as LondonMetric Property. By law, REITs must distribute 90% of profits as dividends, making them attractive vehicles for income seekers.

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.

The bottom line?

The internet is full of promises about passive income but most of them come with more risk, effort and uncertainty than advertised. True passive income is rarely instant. For most investors, it comes from owning quality businesses that share their profits year after year.

Personally, I’ll take dividend growth and reinvestment over flashy schemes any day. It might not sound as exciting as running a travel blog or drop-shipping, but when it comes to reliable passive income, boring usually wins.

The post 3 passive income strategies that aren’t very passive – and 1 that is appeared first on The Motley Fool UK.

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Mark Hartley has positions in National Grid Plc and Phoenix Group Plc. The Motley Fool UK has recommended LondonMetric Property Plc and National Grid 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.

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