I am looking to generate a passive income stream with stocks and shares. I believe buying equities is one of the most uncomplicated ways to generate a passive income. It is uncomplicated, not easy, because while it is straightforward to buy and sell stocks, finding suitable income investments can be challenging.
When I am looking for dividends investments, I try to focus on high-quality corporations. These are companies with large profit margins and portfolios of well-known products. I also like to keep an eye out for businesses with a competitive advantage, such as scale, or a unique technology.
These are the sort of businesses that I want to own in my passive income portfolio. By acquiring high-quality companies, I think I will be able to benefit from both capital growth and income. With income reinvested, I think it will be possible for me to build a substantial pot from which to generate an income stream over the space of the decade.
That is the approach I would use to generate a passive income with an investment of £100 a month. And there are a couple of companies that stand out to me as being the perfect additions to my portfolio right now.
Passive income buys
The first company on my list is the Coca-Cola bottler, Coca Cola Hbc Ag. This stock supports a dividend yield of 2.5%. Further, it has achieved earnings growth of 8% per annum for the past five years. The group’s competitive advantage is its exclusive bottling agreement with Coca-Cola. I think this should help the firm build on its past growth in the years ahead.
I would also acquire homebuilder Persimmon for my passive income portfolio. With a yield of 9%, this income stock offers one of the highest yields in the FTSE 100. The corporation’s main advantage is scale. It can agree to land deals at favourable prices, and economies of scale can help push down costs. As demand for property in the UK grows, I think this stock would make a great addition to my portfolio.
For income and growth, I would acquire the manufacturer of laser-guided equipment, Somero Enterprises. As the company has expanded worldwide, earnings per share have grown at a rate of 10% per annum for the past five years. In addition to this growth, the stock offers a dividend yield of nearly 6% at the time of writing.
Dividend risks
All of these companies appear attractive as income investments, but I will not take their growth and income for granted. Corporations can cut dividends at a moment’s notice. In an inflationary environment, such as the one we are in today, costs could rise substantially, which may force management to reduce shareholder distributions.
Despite this risk, I think all three organisations have the potential to help me grow my £100 monthly investment into a sizeable lump sum. When I have reached my target figure, I can switch from these companies into higher-yield stocks if I decide to live off the income.