The London Stock Exchange is a great place to look for opportunities to create wealth. It’s packed with top-quality, cash-generative businesses that could generate terrific long-term passive income.
UK shares have delivered an average annual return of around 10% over the past decade. It’s why I’ve opened a Stocks and Shares ISA and stuffed it with a mix of attractive growth and dividend stocks.
In fact, that 10% proven rate of return means I could enjoy a handsome passive income with as little as £7.50 a day.
Making passive income
Generating a few extra pounds a day shouldn’t be too difficult for me. I can cut down on expensive lunches, for example, or cancel a video game service subscription that I seldom use. These are small steps that can have a considerable impact on my wealth.
Even just £7.50 saved a day can make a big difference. That equates to around £228 per month, on average. If I invested that in UK shares which produced an average 10% yearly return, I would, after 30 years, have made a shade over £474,000.
Now let’s say I apply the popular 4% withdrawal rule. Drawing this amount down from my nest egg each year would give me a healthy passive income of £18,960.
Why I’m buying dividend stocks
This is the sort of sum that could help me retire in comfort. Though I must concede that 30 years is a long time to wait to receive a life-changing second income.
Pleasingly, there are hundreds of UK shares out there that could help me make a better annual return than that 10% long-term average. One way I’m aiming to make market-beating returns is by buying top dividend stocks.
By doing some good research I can find big-yielding shares that could generate long-term income and deliver exceptional capital appreciation. Whats more, many of these top dividend stocks offer smashing near-term yields following recent stock market falls.
Double-digit dividend yields!
Reach, yielding 10.6%, is one such stock I think could deliver exceptional returns. The publisher of popular titles such as The Daily Mirror faces some near-term profits trouble as its journalists go on strike over pay. But I believe the huge inroads it’s making in digital publishing will deliver excellent shareholder profits in the coming decade.
Rio Tinto’s another top income stock to buy, despite the threat of a sharp economic downturn. In fact I’ve bought this 11.6%-yielding mining stock for my own portfolio. I think phenomena like surging electric vehicle sales and rising urbanisation in emerging regions, will supercharge commodities demand over the next decade.
I’m also banking on Persimmon to give my passive income a significant boost. The housebuilder is at risk from rising interest rates as homeowner affordability comes under pressure. But I’m still expecting profits to soar as Britain’s homes shortage keeps property prices rising. Persimmon offers an enormous 15.5% forward dividend yield today.