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Some people think they need tens of thousands of pounds before it makes sense to invest in the stock market. This simply isn’t the case, as even modest sums can grow over time, especially if the stocks bought can generate good returns via divdiend payments.
Here’s how an investor can make a passive income with just £5 a day.
Points to remember
Given the costs of buying a stock via a broker or investment platform, buying a new stock with £5 each day doesn’t make sense. Rather, I think it’s better to put the £5 away each day in an ISA or other account. At the end of each month, the accumulated money can then be used to purchase a stock. Typically, this would mean using £150 saved to buy it. This means that the fee is much more manageable and makes it worthwhile.
If an investor focused on buying dividend stocks, they could target an average dividend yield of 6%-8%. At the moment, there are 43 different companies in the FTSE 100 and FTSE 250 with a yield above 6%, so there’s plenty to choose from.
If we assume the investor continued putting the £5 away each day and made it a habit, things could grow over time. For example, with an average portfolio yield of 7%, after seven years the pot could be worth £16.4k, having generated £1,042 in dividends that year. Up to that point, the dividends would have been reinvested. This helps to compound gains faster.
Of course, dividends aren’t guaranteed. Companies can have good years and bad years, and during bad years, there’s the risk that the dividend gets cut. In that case, reaching a four-figure passive income could take longer.
A high-yield property option
Another key part of the strategy is picking the right companies. One to consider is Workspace Group (LSE:WKP). The real estate investment trust (REIT) owns and manages flexible office space and business premises.
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The core business model revolves around collecting rental income from the tenants. However, it also aims to benefit from the property values increasing by refurbishing and redeveloping assets.
Over the past year, the stock’s down 18%, which might worry some investors. This has mainly been due to falling office values across London, which have been under pressure due to weaker demand.
Even though this remains a risk going forward, I think we will see businesses continuing to push for a return to office working for many employees in the coming years. Therefore, the move lower in the stock, which has acted to bump up the dividend yield, could be a dip to consider buying.
As for the dividend, it’s remained steady despite the portfolio’s decline in value. The latest half-year results showed underlying net rental income of £58.6m, the same as a year ago. This gives me confidence that the payments can be continued.
Overall, I think it’s a stock to be considered as part of the broader aim of building up a passive income from the stock market.
