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I can easily spend £10 a day on random things, like a couple of coffees or a McDonald's meal. If I invested that same tenner in quality dividend-paying UK shares, I could get a nice extra income stream.
Let me illustrate how you could do this, as well as detail an option that could help as part of a diversified portfolio.
A numbers game
At first glance, £10 a day may not seem like a lot of money. However, adding that up, I get an annual figure of £3,640. The magic of compounding can drive this.
Using a stocks and shares ISA as my preferred investment method, I will invest for 25 years and aim for an 8% rate of return.
There are two things to keep in mind. Firstly, this type of ISA is attractive because I don't have to pay tax on capital gains and dividends. Next, 8% is the rate of return I hope to achieve on the entire portfolio, which would be made up of approximately five to 10 stocks.
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.
Before I dive into the numbers, it's worth remembering that no matter what shares you buy, dividends are never guaranteed. Furthermore, there is no guarantee that it would generate an 8% return; It could be lower, which would affect the income level I hope to achieve. On the other hand, you could earn more than 8%.
Investing £10 a day (or £3,640 a year) for 25 years would leave me with £278,052. I'm withdrawing 5% a year, which equates to £13,902. Translating that into a weekly figure, I'd be left with £267 per week.
Giant drinks
One stock I would love to buy to help me achieve the above would be the soft drink giant. British (LSE: BVIC).
As one of the largest companies of its kind, the company has excellent brand power, a loyal customer base and also a good track record. Some of its best-known brands include J2O, Robinson, and Tango. In addition, it also has an exclusive and lucrative agreement with PepsiCo bottle and distribute their products in the United Kingdom.
The shares have fallen 6% in a 12-month period from 916p this time last year to current levels of 861p.
Macroeconomic volatility has hurt stocks, but I see this as a positive for now as it gives me a better entry point to buy some stocks. They trade with an attractive price-earnings ratio of just 13.
Looking at the rate of return, I find a dividend yield of just under 4% tempting. I am confident that this can grow, in line with the business.
One near-term risk I should note is that continued volatility will hurt demand, sales and performance. This is because Britvic products are considered premium branded items. A cost of living crisis has led consumers to look to stretch their budgets further and buy cheaper, unbranded essentials.
