By admin 
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The idea of earning passive income is attractive to me. Less attractive is the amount of work involved in some supposedly passive income programs.
That’s why I prefer to earn money by investing in dividend stocks. I can benefit from the success of large, proven companies without doing the work myself.
This approach can be profitable and doesn’t have to require committing a lot of cash up front. In fact, I could start with nothing and regularly contribute a fairly modest amount to build up funds for investing.
Here’s how I could do it for £5 a day.
Starting work and ready to invest
My first step would be to develop the habit of saving regularly. So I looked around and found a shares trading account or Stocks and Shares ISA that seemed most suitable.
Having made my choice, I would start paying £5 a day.
Building income streams through dividends
This should have meant I had over £1,800 a year to invest. If I did this at an average rate of return of 6%, my first year of savings should have netted me almost £110 in passive income per year.
However, rather than paying them out straight away (which I could), I would rather reinvest the dividends into shares, adding a fixed £5 a day. By doing this, after ten years I should have a share portfolio worth close to £25,000, generating almost £1,500 in passive income each year.
Finding the right stocks to buy
Is a 6% yield realistic? I think not just from one stock, but on average from a diversified portfolio. To illustrate the type of share I would look for, I will use one that currently actually yields a rate well above 6%. In fact, the yield is currently 9.5%.
The share in question is the share I own, i.e M&G (LSE: MNG), an asset manager with a large client base and a proven business model.
When investing, I look for markets that I believe will benefit from significant long-term customer demand. I think that’s the case with asset management. I also look for companies that have a competitive advantage. Again, I think the same applies to M&G, with its strong brand and large customer base.
The company’s approach is to maintain or increase the dividend per share on an annual basis. As an investor, however, I must be aware that dividends are never guaranteed. If there is a sudden market downturn and people withdraw their funds, I can imagine that both M&G’s revenues and profits would plummet.
Still, the company is an impressive source of passive income for me, and I hope it continues to be so in the future. I have no plans to sell my M&G shares.