Passive income streams can be anything from rent for a spare car parking space to interest paid on a building society account.
I like passive income streams that are lucrative relative to what I put in. So I look for little ongoing effort on my part – but the chance for regular income in return.
That’s why I try to put some money away in shares that I think can hopefully generate passive income streams. Here are five passive income streams I would consider using now.
Plugging in to possible passive income streams
National Grid is a company whose name tells exactly what it does. It operates the network behind much of the electricity transmission in the UK.
Utilities tend to have fairly visible, stable, long-term demand. The cost of building makes it close to a natural monopoly, which is why it is subject to regulatory constraints such as price controls. That can limit profits. Another risk with the company is that more homes and businesses are generating their own power on site through solar panels.
But I think the company has staying power nonetheless. With a yield of 5.4% it looks like an attractive passive income choice to me.
High-yield tobacco
Tobacco shares can often provide substantial passive income streams.
Imperial Brands is the owner of tobacco names like Drum and Rizla. With a highly cash generative business, the company’s dividend equates to 8.7% even after a cut last year. That makes it one of the more attractive passive income streams to me. The company pays out four times a year, which can be helpful when it comes to setting up regular passive income streams.
Imperial has next generation products that could help it ride the wave of declining cigarette consumption in many markets. But demand falls remain a risk.
Well-known insurance brand
The colourful umbrella of Legal & General has been an iconic logo for decades.
That sort of brand familiarity and business history is an asset in my view. It helps Legal & General to maintain prominence in insurance and financial services. These markets continue to offer long-term growth potential in my view, so being well-positioned within them is an attractive business model. With its yield of 6.3%, the insurer is among the passive income streams I’d consider picking today.
Unlike many peers the company kept paying dividends throughout the pandemic. However, there is no guarantee of future dividends.
Passive income streams from metals
Mining giant Rio Tinto is currently yielding around 6.6%. That could be a welcome addition to my passive income streams.
The dividend could actually be higher this year, depending on metal prices. Then again, that is a two-way street: one of the structural risks of miners is that often when metal markets fall their free cash flow tumbles. That can lead to dividend cuts or cancellations.
Telecoms giant
Vodafone offers a 5.8% yield at the moment.
On the bull side, the telecoms company benefits from a wide, entrenched customer base, well-known brand, and the shift to more mixed forms of working, which could boost data demand.
But there is a bear side too. The company’s debt pile remains significant, with net debt reported at €44bn in November’s interim results. That could stifle the company’s profitability.