With Citigroup predicting UK inflation could breach 18% for a period next year, I’m worried my cash in the bank is losing value. Although further interest rate hikes should boost savings account returns, I’m looking elsewhere for investments that generate passive income to protect my wealth.
Here are two ideas I’m exploring to earn £1,000 per month in the future.
1. Dividend stocks
Buying high-yield dividend stocks is a great way to secure regular returns. In particular, I look for blue-chip companies with strong track records of delivering reliable payments to shareholders. Plenty feature in the FTSE 100 index.
One example is Switzerland-based commodities giant Glencore (LSE: GLEN), which looks well-placed to thrive amid Europe’s ongoing energy crisis. Up 28.5% this year, the stock’s outperformed and I think there could be further gains ahead. The company sports a 4.27% dividend yield, making it a great fit for my passive income portfolio.
Rising commodity prices are bullish for the Glencore share price. Indeed, the business recently announced a $4.45bn dividend and share buyback windfall for investors, supported by soaring coal earnings.
The stock isn’t risk-free. Worldwide recessions could suppress industrial demand for metals and oil. This would be a headwind for further growth as these commodities are major contributors to the company’s balance sheet.
Nonetheless, the war in Ukraine continues to fuel disruption across energy markets with no peaceful resolution in sight. I view Glencore shares as one way to neutralise the impact this has on my portfolio. I’d buy today.
2. REITs
Beyond more conventional stocks, I try to manage risk through diversification by investing in real estate investment trusts (REITs) to gain exposure to income-producing property. I like the fact that REITs are obliged to distribute 90% of profits from their rental businesses to shareholders. They also don’t pay corporation tax on these earnings. Plus, it’s more passive than being a landlord.
One on my watchlist is Triple Point Social Housing (LSE: SOHO). Launched in 2017, the group aims to provide reliable, inflation-linked income from its portfolio of social housing assets. It has a particular focus on supported housing for vulnerable adults with long-term care needs.
The latest financial results are encouraging. Rental income rose 16.6% while total expenses remained largely stable, increasing by 4.8%. Net profit, earnings per share and net assets all experienced positive growth. Most importantly, Triple Point has paid all target dividends in full since inception. It expects these will “continue to increase in line with inflation“.
Changes in Britain’s political leadership make for an uncertain future. If a new Prime Minister reduced investment in social housing, the group could struggle. Nevertheless, I’m prepared to take this risk and I’d invest for the solid dividend history and promising forecast.
My passive income portfolio
The annual dividend yield of my envisaged portfolio is higher than the Footsie average of 3.7%. Glencore and Triple Point yield 5.17% collectively. Taking this pair as indicative of my overall holdings, I’d need a total portfolio value of £232,109 to generate £1,000 per month.
While actual returns may be lower, theoretically I could achieve this goal in just under 15 years by saving £10,000 each year and reinvesting the dividends to capitalise on compound returns. Crucially, this calculation conservatively assumes zero capital growth on my investments!