Tucking some spare cash into blue-chip shares could be a simple method to earn some passive revenue, within the type of dividends.

It may be profitable too. On this instance I’ll present how lower than £10k as we speak might earn near £300 a month in passive revenue over the long run.

Sound too good to be true? Let me stroll by means of the small print of how such a plan can work.

Three components that decide the revenue stream dimension

To know the way a lot passive revenue this strategy may generate, we have to take a look at three issues.

One is the quantity invested. Right here, it’s £9k. A wise first transfer could be to place that right into a share-dealing account or Shares and Shares ISA, prepared to take a position.

The second variable is timeframe. I imagine within the long-term strategy to investing and on this instance think about compounding for 25 years (reinvesting the dividends) earlier than then taking them out as passive revenue once they receives a commission.

The third issue to contemplate is the common dividend yield earned. This instance presumes 7%.

How this plan might work in apply

Seven p.c is simply over twice the FTSE 100 common yield proper now. Nevertheless, I believe it’s life like even whereas sticking to a diversified portfolio of carefully-selected blue-chip shares – and £9k is ample to diversify.

For example, one FTSE 100 share I believe traders ought to contemplate is insurer Aviva (LSE: AV). It yields 6.1%, in order a part of a combination of shares, it might assist generate a median 7% yield general.

Insurance coverage is a giant market and I reckon it is going to be for the foreseeable future. The variety of clients is huge and the sums concerned might be substantial.

Aviva has extra UK clients than any rival and that’s set to develop with the deliberate takeover of Direct Line. I do see a threat although, as integrating that troubled enterprise might distract Aviva from its day-to-day give attention to the present operations.

This week, the agency introduced that enterprise stays strong, with basic insurance coverage premiums within the first quarter rising 9% year-on-year.

Since a 2020 dividend lower (all the time a threat with any share), Aviva has steadily grown its annual dividend per share. It plans to maintain doing so, though these are by no means assured.

Setting the ball rolling

Compounding £9k at 7% yearly for 25 years, then drawing down dividends at a 7% yield, would imply that after the ready was over, somebody ought to earn somewhat over £285 every month, on common.

I realise it’s certainly an extended wait, though time usually flies by quicker than we anticipate. However this isn’t some pie-in-the-sky passive revenue plan. It’s a well-considered strategy to producing hopefully sustainable passive revenue flows whereas doing little or no and investing in blue-chip firms with confirmed enterprise fashions.