Buying shares that pay dividends is one of the ways to obtain passive income.

Can it work? Is it ever! With a long -term time horizon and a careful selection of shares for purchase, a pot worth £ 20,000 can potentially produce almost 11 thousand. GBP annually passive income.

Snakes and ladders

How If someone meets 20,000 GBP for 8% per year for 25 years, the portfolio will be gigantic enough to make 8% dividend profitability equal to passive income of 10,958 GBP per year.

This connection can come from both dividends and capital gains, although all capital losses would eat in it. Meanwhile, 8% dividend performance is much above the current FTSE 100 average 3.3%.

However, with careful selection of actions, I believe that 8% of the annual growth rate is possible to achieve.

Dividends are never guaranteed, and even gigantic companies can fail, so it is essential to diversify different actions. There are a lot of 20,000 pounds.

Finding shares for purchase

Looking for action that, as I hope, I will be able to pay me passive income, I look at the current dividend – but much more.

Regardless of whether the payment is petite or gigantic, I want to understand how likely it is maintained in the future.

To pay a dividend, the company needs spare cash. So I am looking for a proven business with a competitive advantage in the industry, which I expect resistant customer demand.

One to consider

As an example, one share, I think that investors should consider their passive income potential is the FTSE 100 insurer Phoenix group (LSE: PHNX).

This is not the name of the household, although some of its brands, such as standard life (so much that Phoenix plans to change the brand to standard life).

Phoenix works in a uninteresting but key world of retirement and retirement products. He has millions of clients, such as former employees of the company who implement their retirement plan. By buying ancient books from pensions, and also writing his own business, Phoenix built a huge business.

It aims to boost the dividend to the action each year. Because dividends are never guaranteed in any company, regardless of whether it is able to do it. However, it has succeeded in recent years. The current dividend performance of 8.4% is above the target of the annual growth rate, which I mentioned above.

However, the price of Phoenix shares dropped by 7% in five years, and with one risk I see is the feeble real estate market, it hurt the value of some Phoenix mortgage books.

From a long -term perspective, I like the appearance of Phoenix.

Starting work

Dividend shares offer great potential for passive income – but only if you have them! The useful first step is to choose an account, shares and shares or application for action.