Generating passive income from the stock market is currently quite easy. That’s because many UK shares are paying generous dividends.
Here, I’m going to show how a simple, three-stock portfolio could deliver strong passive income. With £10k invested, a potential £700 per year could be generated.
Big dividends
One dividend stock that looks very attractive to me is Legal & General Group (LSE: LGEN). It’s a diversified financial services company offering insurance, investment management and retirement solutions.
This stock is currently paying a very big dividend. And analysts expect the company to reward investors with total dividends of 20.3p per share this year.
Given that the share price is about 219p, if I was to invest a third of my £10k in the stock (worth about 1,522 shares), I could potentially generate about £310 in income per year.
The risk here is that Legal & General’s share price can be quite volatile, so the value of my investment could fluctuate in the short term.
Taking a long-term view however, I think I should do well, as the stock now has a low valuation and the company is well placed to benefit from a number of growth drivers.
Reliable income
Another stock I like the look of is National Grid (LSE: NG.), the largest electricity transmission and distribution company in the UK.
For 2023, analysts expect National Grid to pay out 57.7p per share in dividends. This means that if I invest a third of my £10k in the stock, I could potentially pick up income of around £195 per year.
Now this company is a very reliable dividend payer. And it’s also quite ‘defensive’ in nature (we all need electricity and gas), which means its share price tends to be quite stable.
But there are risks to consider. One is higher bond yields. If these keep rising, we may see investors pull money out of stocks like National Grid and shift their capital into bonds (which are less risky than stocks). This could result in lower share prices.
Bright prospects
Finally, I’m going to add Renewables Infrastructure (LSE: TRIG) into the mix. This is an investment company that owns a broad portfolio of wind and solar farms across the UK and Europe.
One of this company’s goals is to provide steady, sustainable returns to investors through dividends. And it’s done a good job of this in recent years.
This year, the company is expected to pay out 7.19p per share in dividends, which means if I invest a third of my portfolio in the stock, I’d potentially collect income of around £220 per year.
I think this company has bright prospects given the global shift to renewable energy.
However, as always, there are risks. For example, sub-optimal weather conditions could result in lower energy and cash flow generation in the future.
Overall though, I like the risk/reward proposition today.
Building a portfolio
Putting this all together, with these three stocks I could potentially generate income of around £725 per year (assuming the dividend forecasts are accurate).
That’s a pretty good result from a £10k investment, to my mind.
Of course, owning only three stocks would be risky. If one fell significantly, my overall returns could be low. So I’d look to buy more income stocks for my portfolio over time.
