I often hear people say that they just do not have enough savings to start buying stocks yet. And this is more likely to be true when we are young and have not built a pool of investible funds yet. I do think, however, that we should start investing wherever we are, with what we have. And over time, we could see the benefits of starting early.
What can I buy for £30?
In fact, if I were to start investing today with very little money to spare, I could technically buy one of the best dividend yielding FTSE 100 stock for just £6. I am talking about the FTSE 100 industrial metals miner and steel manufacturer Evraz, which pays me a yield of 13.2%. The stock has an eye-watering dividend yield of 13.2%! This means, that for every stock I buy, I earn almost 80p in dividends per year.
To make the most of my investments, ideally I should aim for as low a trading fee as possible. We at The Motley Fool like to recommend it to be no more than 2% of the total value of investment. There are trading platforms that offer a fee of less than £2 a trade, so if I am going to start investing, I could consider those. Also, the stamp duty on any electronic transactions is 0.5% of the trading value, which I should take into consideration. Based on this, I would invest £120 in a month in the stock or just £30 per week.
What happens in a year
This would amount to an ownership of 20 Evraz shares every month and 240 in one year. At the current share price, this could result in a dividend payout of £190 in a year. Even if I deduct the transaction costs and stamp duty from this return, I still earn a double-digit yield of 11%. Now, this is not exactly a life-changing amount. But it is indicative of how even the smallest amount of money could really amount to something in a relatively short period of time if invested right.
Of course, not all shares have a yield of 11% — many are much lower — and high-yield shares often come with risks.
But it is still possible that my income could grow over time. This would allow me to increase my level of investments. And if I keep ploughing any dividends back into more investments as well, it might just be a matter of time before I have a pretty substantial base of savings
How to keep generating passive income
There is of course always the possibility that the stock’s dividend yield could change over time. For instance, in the case of Evraz, next year could be a weaker one. The commodity boom is expected to slow down a bit and it is facing higher taxes in its home country of Russia as well. But going by its past dividend history, the yield could still be substantial. Also, there is nothing that stops me from moving my money around to other opportunities to generate a passive income over time either.