Passive income may seem like a brilliant idea. But how realistic is it in the real world to make money without having to work?

The answer to this question depends on the approach taken.

One way many people earn passive income is to buy shares in companies that they hope will pay them dividends in the future.

Sometimes this works great. Despite everything, FTSE100 companies alone pay well over £1 billion per person week on average in the form of dividends.

However, sometimes this approach is less effective: no company ever guarantees a dividend. It can be helpful to carefully select a diversified portfolio of high-quality stocks.

Starting from where you are

You don’t have to start on a enormous scale. As an example, I’ll employ the idea of ​​investing £30 a week in dividend stocks.

In just one year this will add up to approximately £1,560. With a long-term approach focusing on investing over the years, this may only represent a diminutive part of the long-term investment pool.

But even taking £1,560 as an example at a dividend yield of 5%, this should provide around £78 of passive income over the year.

You can also reinvest these dividends (so-called compounding). A total of £1,560 at an interest rate of 5% per annum for just five years would yield just under £2,000. pounds. At a dividend yield of 5%, this would be enough to generate around £100 in passive income per year.

However, the bigger picture is not just about contributing or applying for one year.

Investing £30 a week and growing 5% over a decade, the portfolio should be worth around £19,073. At a dividend yield of 5%, without putting another penny in, this should be enough to generate around £953 in passive income per year.

Making informed choices

Some assumptions can be added here.

I’m assuming someone has an investing platform, but if not, they could easily look into a share trading account or Stocks and Shares ISA.

I also assume that dividends are constant. They may not be: companies may cut them out. On the other hand, they also raise them.

The next assumption is an average profit of 5%. That is, above the current FTSE100 average 3%. However, I believe this should be achievable in today’s market by sticking to enormous, proven companies.

One stock I think passive investors should consider is the FTSE 100 insurer Aviva (LSE:AV). It currently offers a yield of 5.4%.

Insurance is a enormous market with elastic demand. As the country’s leading insurer, Aviva stands to benefit from this.

It achieves economies of scale, which should enhance further this year with the integration of Direct Line. Aviva has a huge customer base, deep insurance experience and a powerful brand. These features assist it generate significant free cash flow, which funds its dividend.

However, Aviva is no stranger to dividend cuts: it cut its shareholder payout five years ago.

I see risk as with any stock. Integrating Direct Line – a company that was struggling before the takeover – could, for example, divert management’s attention from the core business.

That said, I believe Aviva has stern long-term earnings potential.