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In my opinion, the goal of having a passive income stream is achievable. Let me explain how you would achieve this with a carefully designed plan.
Steps I would follow
To start, I would choose my investment vehicle. For me, a stocks and Shares ISA is a no-brainer here. I have an annual allowance of £20,000 and do not need to pay a single penny in tax on dividends received.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Next, I would buy about 10 blue-chip dividend stocks with good fundamentals. Let me be clear: This is the hardest part of making sure I'm investing in the right stocks to maximize my returns.
Let's say, to illustrate this plan, that I have a lump sum of £15,000. I will put it into my ISA before I buy my shares with it. To maximize my second source of income, I will also be adding £250 per month to my salary.
My goal is to earn an 8% return and I will follow this plan for 25 years so I can enjoy my money in the future.
After this period, I would have £347,859 left. I will be able to withdraw 6% per year, which is equivalent to £20,871. Calculating that into a weekly amount, you could pocket £401 a week to enjoy however you like.
There are risks associated with this plan. First of all, dividends are never guaranteed. Additionally, I could earn less than the 8% return I expect, which would leave me with a smaller pot to withdraw from. All of this adds up to stock-specific risks I need to consider too! Of course, you could earn more than 8%.
Health properties
An example of the type of stock I would love to buy if I were executing this plan today would be Primary health properties (LSE: PHP).
The company is incorporated as a real estate investment trust (REIT). The attraction of these real estate companies that make money from their assets is that they are a dividend seeker's dream, since they must return 90% of the profits to shareholders. In exchange, they do not pay corporate tax, among other advantages.
As the name suggests, Primary invests in and rents healthcare services to the NHS and private healthcare companies.
The good news is that the demand for healthcare is only increasing due to population aging and growth. Growth and increased profitability could be at stake, which in turn would help me achieve my investment goals.
The stock currently offers a dividend yield of 6.7%. However, depending on how the UK healthcare market looks and how the economic turbulence is dissipating, this could grow further.
However, there are a couple of risks that could affect earnings and profitability. First, REITs like Primary rely on debt to finance acquisitions and growth. As interest rates are currently high, servicing this debt could be more costly and reduce hopes of higher profits and returns. This is an economic risk that I will be aware of and that could affect the business.
Overall, Primary is poised to benefit from a booming market and offers a good rate of return to support me and my investment goals.
