My list of passive income ideas includes investing in shares. That way I can sit back and enjoy any dividends which come my way, without needing to work for them.
Here are five shares I would consider buying today to boost my passive income streams.
Passive income from financial services
Insurer and financial services provider Legal & General has a dividend yield of 6%. Better still, it has set out plans to increase payouts over the coming four years or so. There is never a guarantee of future dividends, but I take that as a positive statement of intent.
I think the company’s business could benefit from excess savings some people have amassed during lockdowns. Any economic boom could also lift demand for financial services, which might boost revenues.
Risks include price competition — some lines of insurance are notoriously cyclical and lower premiums could hurt profits.
Tech choice for passive income
UK software company Sage specialises in accounting tools for small and medium-sized enterprises. I think that is an attractive niche. There is a clear need and once customers start using the software, moving to a different platform would incur time and effort.
Sage shares currently yield 2.6%. The company has raised its dividend each year for two decades. Risks include a transition from physical installations towards cloud operations. That could incur additional costs and so hurt profits.
Energy choice
UK oil major BP has been reorienting itself towards alternative energy in its future product mix. Last year it cut its dividend.
So why would I have it as one of my passive income ideas? Despite the cut, the company still offers a yield of 4.7%. While it has ambitions outside of fossil fuels, I also feel sure that it can continue to pump oil for many years yet.
As it pays its dividends in dollars, one risk for a UK income investor like me is any negative swing in the exchange rate.
High-yield passive income
Yielding over 7%, I think British American Tobacco earns its place on my list of passive income ideas. The owner of brands such as Lucky Strike is a cash generation machine. Like Sage, it has a record of raising dividends annually for the past couple of decades.
A risk is declining demand for cigarettes in some markets, which could hurt profits and revenues.
Passive income blue chip
Like BAT, Diageo has a long history of dividend raises – in its case, over more than three decades. As the owner of brands such as Baileys and Talisker, it enjoys premium pricing power. The company recently restarted its share buyback programme. I take that as a sign of management confidence.
The 2% yield is the lowest on my list, but I like the quality of its portfolio. For many drinkers, there is no substitute for their preferred tipple. I think that should help Diageo do well even if it decides to trim its marketing and sales costs.
One risk which does concern me is its heavy focus on alcohol. As consumers consider healthier lifestyles, that could lead to falling sales.