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Have you ever considered putting aside a few pounds each day to buy dividend stocks and try to build up some income streams?
It’s a method that can work. It doesn’t even require a lump sum of money, or large donations.
Matching your approach to your situation
Say someone chooses to put away £3 a day. It may not seem like much, but over time things can build up. That £3 a day can add up to £1,095 a year.
It is possible to invest more money, of course, and hopefully earn more income.
Of course, one thing I love about dividend stocks as a way to make money is such flexibility. It can be adapted to suit individual circumstances.
Setting up a way to buy shares
If I’m talking about putting aside a few pounds a day, throwing coins in a jar can work well as a starting point (and can be a good visual reminder to put money in each day).
But a pot of money alone won’t work when it comes to actually buying stocks!
So the practical move would be to hunt for a good option when it comes to trading accounts, Stocks and Shares ISAs, and trading apps.
Understanding the economics of income shares
Not all businesses pay dividends, even if they are profitable and have done so in the past.
That’s why smart investors keep their portfolio diversified among many companies.
They also look carefully when deciding which stocks to buy. How likely is the company to pay dividends in the future and at what level? How attractive is its current price?
I FTSE 100 it currently yields 2.9%. That means £100 invested today should generate £2.90 a year in dividends.
How much would such an approach gain?
I think in the current market an investor can realistically target a 6% yield (£6 of annual income per £100 invested), while sticking to high quality companies.
6% of £1,095 is about £66. So, £3 a day a year invested at 6% yield would produce £66 of annual income.
But things can be very beneficial in the long run.
Let’s say someone invests £3 a day for 10 years, and reinvests (including) the returns. Compounded at 6% per annum, that would mean the portfolio should be worth more than £14,800.
With a dividend yield of 6%, that would generate an income of £890 per year.
In an effort to buy income stocks…
One share that I think investors should consider is its income potential ITV (LSE: ITV).
I FTSE 250 the company is a household name. Traditional television is declining – a risk to the firm’s future advertising profits – but it remains a big business and ITV has a strong position.
At the time, ITV was busy building its own digital offering.
There is another side to the company, too. Not only does it broadcast, it also has a rental business and a production studio.
The company aims to pay an ordinary dividend of 5p per share per year. Currently, ITV shares are up 6.1%.
Another risk of profit is reducing the need for advertising. That saw ITV’s advertising revenue fall in the latest quarter, although it identified cost savings to help cushion the impact.
