Generating passive income is a common financial goal, and it’s basic to see why. Life is pricey and a little extra cash can make a huge difference.

Want to create a solid passive income stream that brings in a significant amount of cash each year? Here’s my top tip.

The secret of passive income

Today, there are many different ways to generate passive income. Personally, I have a few different strategies that bring in cash with minimal effort.

My key tip for those looking for passive income is: become a business owner. But I need to clarify a few things here.

Money for nothing

There are two main types of business owners – busy owners and passive owners.

In the first type, time is converted into money. An example would be someone who actively runs a coffee shop.

The second type owns a business but does not work himself. This type of owner puts in minimal effort and still receives a enormous share of the profits.

In my opinion, the key to generating passive income is to be the second type of owner. Because with this setup we get paid to do next to nothing.

It’s basic to start

Now I realize that not everyone has the financial resources to buy an entire company. However, you don’t have to do this to become a passive business owner.

Today, anyone can become a company owner by purchasing shares in the company. As a shareholder, you are essentially a co-owner of the company, which means you are entitled to a share of the profits.

If the company pays out its profits to shareholders in the form of dividends, you are entitled to shares. This means regular cash deposits arriving in your account.

It is worth noting that today investors can start buying shares for as little as a few hundred pounds. So becoming a co-owner of a business is truly an option for almost anyone.

Of course, finding good companies to invest in can come with some challenges. But that’s where resources like to be A motley fool Come in.

This British company generates a lot of cash

One stock I think is worth considering for passive income is M&G (LSE:MNG). It is a company with an established savings and investment position operating all over the world.

It paid investors a dividend of 20.1p per share for the 2024 financial year. So if someone owned 2,000 shares of the company today (a share worth about £5,200), they would receive about £400 in dividends.

Note that this translates into a dividend yield of approximately 7.7%. This is a much better return than current savings accounts offer.

Now it is worth noting that if someone is a co-owner of a company, he or she is always exposed to the risk of investment losses. In the case of this company, there is a risk related to the volatility of financial markets and competition from larger, more powerful players.

However, I like the overall risk/reward proposition. The company is doing well today – profits are growing – and its valuation is very reasonable.