Investing in shares that pay dividends is a standard, sensible approach for individuals to earn passive revenue.

That doesn’t imply it’s straightforward. Dividends are by no means assured and share costs can fall, so a wise investing method issues. However with out a lot effort, I believe a sensible and wise investor might construct substantial passive revenue streams over time.

For example, with a spare £20k, here’s what an investor may be capable of obtain whereas sticking to confirmed blue-chip corporations from the highest tier FTSE 100 index.

Investing well and realistically

Twenty grand is an effective quantity truly, because it simply permits an investor to diversify throughout just a few completely different shares. That may be a easy however essential danger administration precept and £20k might additionally sometimes be invested as one yr’s ISA allowance. This yr’s contribution deadline is only a fortnight away.

Please be aware that tax remedy will depend on the person circumstances of every consumer and could also be topic to alter in future. The content material on this article is supplied for data functions solely. It’s not meant to be, neither does it represent, any type of tax recommendation. Readers are liable for finishing up their very own due diligence and for acquiring skilled recommendation earlier than making any funding selections.

I believe an investor would do properly to comply with different rules of excellent funding. It additionally is smart to purchase and maintain shares utilizing an appropriate and cost-effective buying and selling platform. So beginning place can be to check completely different share-dealing accounts and Shares and Shares ISAs available on the market.

Every investor is completely different and what works properly for one will not be your best option for one more.

Discovering shares to purchase

I discussed above the thought of shopping for a carefully-chosen number of confirmed blue-chip companies. I believe it is smart to do what billionaire investor Warren Buffett does and persist with what you already know and perceive. Once more, that may differ from investor to investor.

As an instance the method I take, I might use one share in my portfolio: Authorized & Common (LSE: LGEN). It has a big market of potential and precise prospects, due to its concentrate on retirement-linked investments.

Authorized & Common has an extended heritage and lengthy model that ought to assist it lengthy into the longer term to draw and retain shoppers. It has a confirmed enterprise mannequin and a big buyer base.

My primary motive to personal it’s for passive revenue. It has raised its dividend yearly over the previous few years and plans to maintain doing so, although dividends are by no means assured. The sale of a big US enterprise might imply smaller earnings in future and that might damage the dividend, for instance.

Constructing in the direction of an revenue goal

In the meanwhile, the share has a dividend yield of 8.8%. So each £100 invested now will hopefully earn £8.80 in dividends yearly. That’s properly above the FTSE 100’s common yield of three.5%.

Nonetheless, in as we speak’s market I believe an investor might realistically intention to attain double that (7%) from the proper portfolio of blue-chip dividend shares.

In a single yr, £20k invested at a mean 7% yield ought to supply £1,400 of passive revenue. That’s roughly £116 every month. By reinvesting these dividends (what is called compounding) although, an investor might construct a much bigger portfolio – and passive revenue streams.

Compounding at 7% yearly for twenty years, an investor might flip a £20k portfolio into one price over £77okay. At a 7% yield, that must generate £451 a month of revenue.