One option to earn passive revenue is to park one’s cash for years in shares of well-known companies that look set to pay dividends in future.

An instance of such a share is FSTE 100 monetary providers big Authorized & Basic (LSE: LGEN).

It not too long ago set out plans to continue to grow its dividend per share because it has been doing lately. It plans a 5% improve this yr, adopted by 2% yearly for a number of years after that.

The plan was obtained coolly within the Metropolis, with the shares being marked down on the day it was introduced. Certainly, in 5 years the Authorized & Basic share price has finished worse than nothing. It has truly fallen 13%.

On prime of that, the plan is only a plan. No dividend is ever assured, it doesn’t matter what an organization intends.

For instance, if a monetary disaster leads purchasers to tug funds from its retirement merchandise, Authorized & Basic might even see earnings tumble and need to slash its dividend. It did precisely that after the final monetary disaster.

Engaging dividend yield with development prospects

All that stated, dividend development mixed with a falling share price signifies that I just like the look of Authorized & Basic from a passive revenue perspective.

To start, take into account the yield.

At 8.8%, it signifies that I must earn £8.80 subsequent yr for every £100 I make investments. So placing £10,000 immediately into Authorized & Basic shares may earn me round £880 yearly in passive revenue.

That’s earlier than even taking the deliberate dividend will increase into consideration. A single funding now may see me incomes passive revenue subsequent yr, extra the yr after that, much more the yr after that – and so forth and so forth.

Confirmed enterprise with ongoing potential

However dividends don’t exist in a vacuum. For an organization to pay them over the long term, it must generate enough spare money.

So it’s at all times vital, when analysing a share’s passive revenue potential, to think about not solely the dividend however the place it would come from. How robust does the enterprise look and what would possibly occur to its funds?

I do see some challenges for Authorized & Basic. A deliberate reorganisation threatens to distract asset managers’ consideration from their core job. That would damage efficiency. An uneven financial efficiency additionally brings a threat of purchasers redeeming insurance policies early, hurting earnings.

However it within the spherical, I like the concept of proudly owning Authorized & Basic shares.

The corporate operates in a market I count on to see excessive long-term demand. It has a lot of strengths that may bolster its place in that market, from an iconic model to a sizeable shopper base. The corporate has a confirmed enterprise mannequin and has been persistently worthwhile over a few years.

If I had a spare £10K immediately and needed to develop my passive revenue streams, shopping for Authorized & Basic shares could be on my to do listing!