There are several different ways that I can go about trying to generate income outside of my regular job. Buying a property and letting it out is one way. Yet with the high deposit needed and the illiquid nature of buying and selling, I prefer to use dividend shares instead. Here are some of my favourites right now to bank some cash.
Freedom to mix and match with available funds
One of my concerns with buy-to-let income is the size of the minimum investment. This doesn’t apply with dividend shares. Obviously I have to take into account transaction costs, but even with £100 I can get exposure to a stock that can provide me with income.
I like this as it enables me to buy a selection of stocks from different areas, even with a relatively modest amount of money. For example, I’m happy to take on some risk associated with commodity stocks. Antofagasta and Rio Tinto are currently offering dividend yields of 9.31% and 11.45% respectively. However, given the volatility in core prices due to the war in Ukraine and supply issues, the share price swings could erase the income I get.
As a result, I’d mix in some more stable shares such as SSE and National Grid. Both have yields in the 4% region, much lower than the commodity stocks. But at the same time, I’m not expecting as much of a share price issue from these utility options. Further, these stocks get me exposure to renewable energy, adding to the diversification of my portfolio.
So even if I take £400 and split it between these four options, I feel that I can get enough exposure to make a difference. Conversely, the same amount of money would hardly cover my solicitor’s fees on a property.
Ease of entry and exit for dividend shares
Another benefit of using stocks for income is the fluidity with which I can buy and sell. In theory, I could liquidate my entire portfolio today.
This helps me to reduce the risk of forecasting future income potential. For example, I’d be keen to add Unilever to my portfolio. It has 21 years of consecutive dividend growth. Yet there’s always a possibility that it cuts the dividend in the future for some reason. In that case, I’d probably look to sell it and buy another firm.
The ability for me to make this shift quickly helps me to reduce the uncertainty of stocks reducing the income payouts. Sure, it’s still a risk, but one that I can look to manage easier than if I had a lengthy selling timeframe to contend with.
Overall, I’m not knocking buy-to-let as an investment option. But for my current situation, I feel dividend stocks suit me much better.