With utility bills heading higher and pay levels not keeping up with inflation, having a side hustle makes a lot of sense. It helps me to take some of the pressure off my main job, and allows me to use the passive income in different ways. If I don’t need it for bills, I’ll reinvest it back into stocks to enable me to earn more further down the line. Here’s how.
Identifying the right stocks to invest in
There’s a misconception that all stocks are similar. Different listed companies can have incredibly different characteristics. For example, Tesla is a growing electric vehicle manufacturer that’s using retained profits to pump back into the business to fuel growth. It isn’t interested in paying out profits to shareholders as dividends at the moment.
In contrast to this, Rio Tinto is a mature mining company that has reached scale in the industry. It has a different approach, and pays out a generous dividend to shareholders on a regular basis. It currently has a dividend yield of 9.93%. This means that if the dividend payments remain the same, I’d generate just under £100 of passive income per year if I invested £1,000.
For me to maximise my passive income potential, I want to invest in dividend-paying stocks. This way, I can accumulate income. From there, I can decide what I want to do with the extra funds.
Sustainable dividend stocks for passive income
Even though I’m happy with dividend stocks, I want to differentiate further when trying to make my side hustle as efficient as possible. If I have a set amount of start-up money to invest, I want to split it up between several dividend stocks. Just like other side hustles I might be looking at, I don’t want to put all of my eggs in one basket by picking just one dividend stock.
To give myself the best chance of sustainable dividend income for years to come, I’d pick a stock from each of the main sectors. These include tech, healthcare, finance, utilities and other industries. If something negative happens to one sector, it won’t unduly impact my overall passive income.
I can also check out the track record of dividend payments to make me more comfortable. For example, National Grid and British American Tobacco have both had two decades of consecutive dividend growth!
Risks to watch out for
Any investment carries a degree of risk to it that I need to be aware of. Dividend stocks are no exception. My capital invested fluctuates in value with the share price. This could mean that I receive more or less than I originally invested when I sell the stock.
Further, dividends aren’t guaranteed payments. They’re paid at the discretion of the management team. If the business has a bad year, it might decide to cut the dividend per share and use the cash within the operation instead. This would decrease the amount of passive income I’d receive in that particular year.