If I had £17,000, I think the best thing I could do with it would be to use it to earn passive income. And I’d look to do that by investing in dividend stocks.
At today’s prices, the returns might start small. But over time, it could grow into something that would generate £6,000 a year.
How do I get the cash to start?
I don’t have £17,000 lying around. But I’m intrigued by the universal inheritance concept – a grant potentially given to every citizen at the age of 18. It’s an idea that has been suggested a few times. Last week, it was put forward by a minister in Spain.
The scheme would hypothetically provide €20,000 (£17,000) to be used for education, training, or starting a business.
Unfortunately, investing the money in the stock market doesn’t count and I’ve not heard any indication of something similar being introduced in the UK. But it got me thinking about what I’d do with £17,000 given the chance to set myself up later in life.
I’d try to emulate my investing hero. Warren Buffett has followed a simple model – buy businesses that generate cash and use the earnings they produce to buy more businesses.
Dividend stocks
With £17,000 I wouldn’t be able to buy a business outright. Fortunately, the stock market allows me to follow Buffett’s approach by owning shares in companies that distribute their earnings as dividends.
By investing in dividend stocks, I can reinvest the cash I receive into other businesses. For example, I could buy Legal & General shares and use the dividends I received to buy shares in Unilever.
I’m not expecting to generate Buffett-like wealth. That requires a rare combination of talent and good fortune, but the FTSE 100 has returned around 6% a year, which seems more reasonable.
If I could find a way to compound a £17,000 investment at 6% for 30 years, I’d eventually have a portfolio with a market value of £97,000. And this would generate around £6,000 in passive income.
Stocks to buy
The hardest bit with getting started is working out which stocks to buy from the huge range available. But right now, I like the look of Warehouse REIT in the UK and Kraft Heinz from the US.
Warehouse REIT owns and leases industrial buildings. There’s a short-term risk of tenants defaulting on rent in a recession, but I expect the company to profit from the rise of e-commerce in the long term.
With Kraft Heinz, the bigger risk is inflation weighing on margins. But I think this risk is offset by the fact that demand for the company’s products should remain steady even in an economic downturn.
At today’s prices, Warehouse REIT has an 8% dividend yield and Kraft Heinz’s yield is 4.5%. If I had £17,000 to invest today, I’d look for a 6% return by dividing it between these two stocks.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Getting started
I don’t know whether investing could count as a business activity for the purposes of a universal inheritance scheme. But with £17,000 to invest, I’d look to use it to start a portfolio of dividend stocks.
Reinvesting my returns could help me to grow my investment over time. And, eventually, I could have something that would offer a meaningful second income later in life.
The post How I’d invest £17,000 to aim for £6,000 in annual passive income appeared first on The Motley Fool UK.
Our analysis has uncovered an incredible value play!
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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Stephen Wright has positions in Kraft Heinz and Unilever Plc. The Motley Fool UK has recommended Unilever Plc and Warehouse REIT Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
If I had £17,000, I think the best thing I could do with it would be to use it to earn passive income. And I’d look to do that by investing in dividend stocks.
At today’s prices, the returns might start small. But over time, it could grow into something that would generate £6,000 a year.
How do I get the cash to start?
I don’t have £17,000 lying around. But I’m intrigued by the universal inheritance concept – a grant potentially given to every citizen at the age of 18. It’s an idea that has been suggested a few times. Last week, it was put forward by a minister in Spain.
The scheme would hypothetically provide €20,000 (£17,000) to be used for education, training, or starting a business.
Unfortunately, investing the money in the stock market doesn’t count and I’ve not heard any indication of something similar being introduced in the UK. But it got me thinking about what I’d do with £17,000 given the chance to set myself up later in life.
I’d try to emulate my investing hero. Warren Buffett has followed a simple model – buy businesses that generate cash and use the earnings they produce to buy more businesses.
Dividend stocks
With £17,000 I wouldn’t be able to buy a business outright. Fortunately, the stock market allows me to follow Buffett’s approach by owning shares in companies that distribute their earnings as dividends.
By investing in dividend stocks, I can reinvest the cash I receive into other businesses. For example, I could buy Legal & General shares and use the dividends I received to buy shares in Unilever.
I’m not expecting to generate Buffett-like wealth. That requires a rare combination of talent and good fortune, but the FTSE 100 has returned around 6% a year, which seems more reasonable.
If I could find a way to compound a £17,000 investment at 6% for 30 years, I’d eventually have a portfolio with a market value of £97,000. And this would generate around £6,000 in passive income.
Stocks to buy
The hardest bit with getting started is working out which stocks to buy from the huge range available. But right now, I like the look of Warehouse REIT in the UK and Kraft Heinz from the US.
Warehouse REIT owns and leases industrial buildings. There’s a short-term risk of tenants defaulting on rent in a recession, but I expect the company to profit from the rise of e-commerce in the long term.
With Kraft Heinz, the bigger risk is inflation weighing on margins. But I think this risk is offset by the fact that demand for the company’s products should remain steady even in an economic downturn.
At today’s prices, Warehouse REIT has an 8% dividend yield and Kraft Heinz’s yield is 4.5%. If I had £17,000 to invest today, I’d look for a 6% return by dividing it between these two stocks.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Getting started
I don’t know whether investing could count as a business activity for the purposes of a universal inheritance scheme. But with £17,000 to invest, I’d look to use it to start a portfolio of dividend stocks.
Reinvesting my returns could help me to grow my investment over time. And, eventually, I could have something that would offer a meaningful second income later in life.
The post How I’d invest £17,000 to aim for £6,000 in annual passive income appeared first on The Motley Fool UK.
Our analysis has uncovered an incredible value play!
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Down 40%, this FTSE 100 share looks cheap to me
Should I buy more of this FTSE 100 stock before it’s too late?
I’d forget buy-to-let! These 5 property investments all yield more than 7%
Which of these dirt-cheap FTSE 100 shares should investors buy for passive income?
Down 36% from 2023’s high, this FTSE 100 stock looks cheap to me
Stephen Wright has positions in Kraft Heinz and Unilever Plc. The Motley Fool UK has recommended Unilever Plc and Warehouse REIT Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
