Image source: Getty Images
British companies have paid out tens of billions of pounds in dividends already this year, providing passive income streams for lots of investors.
Some of those investors are big pension funds or asset managers – but others are people with only a small amount of spare money to invest, who decided that buying dividend shares could perhaps be a useful source of passive income for them.
Such an approach really need not be expensive. Here is a passive income plan someone could consider putting into action today for 2026 and beyond, for just £3 a day.
Using a few pounds a day to buy income-producing shares
That £3 a day does not disappear. It is used to buy shares.
Those shares will hopefully produce dividends (it makes sense to spread the investment, as dividends are never guaranteed at any company).
But the investor will also own those shares. That could mean a capital gain over time if the share price moves up, although of course share prices can go down too.
Modest regular contributions can add up
In one year, £3 a day would add up to over £1,000. That would let an investor buy a range of blue-chip dividend shares.
Currently the dividend yield of the FTSE 100 index of leading shares is 3.1%. That means £100 invested ought to earn £3.10 in dividends annually, if the payouts stay at their current level.
Instead of taking the dividends as passive income, an investor could choose to reinvest them. That is called compounding.
I reckon a higher yield than 3.1% is possible, even when sticking to proven blue-chip businesses. As an example, I will use 5%.
Investing £3 a day and compounding it at 5% annually, after five years an investor should have a portfolio worth over £6,200.
At a 5% yield, that should generate some £310 each year in passive income!
On the hunt for dividend shares
It can be quite fun sniffing around the stock market for shares that offer the prospect of juicy passive income streams.
One share I think is worth passive income hunters considering right now is FTSE 100 insurer Phoenix Group (LSE: PHNX).
I mentioned above a 5% overall target yield from a diversified portfolio. Phoenix currently delivers well above that. Its 8.1% yield is among the highest of any share in the top-tier index.
Not only that, but the company aims to grow its dividend per share each year.
Dividends are never guaranteed, though, so can Phoenix deliver?
Its long-term retirement and savings business has ongoing potential, thanks to a large customer base and strong brands including Standard Life.
One thing to watch for is the company’s mortgage book. If the property market enters a severe downturn, I see a risk that some valuations in Phoenix’s mortgage book may need to be reduced, hurting earnings.
But I am upbeat about the long-term passive income prospects offered by this FTSE 100 share.
Putting good intentions into practice
This passive income plan is not complicated. If it stays as just a plan, however, it will not earn a single penny!
A practical first move for an investor would be to choose a share dealing account, Stocks and Shares ISA or trading app.
They could then start putting that £3 each day into it.
