How I’d try to build a passive income in 2022 with £50 a week
As we ring in the New Year, I plan to double down on my passive income strategy. I have been developing a passive income strategy over the past couple of years, although it has not been an easy ride.
To accomplish these aims, I have been acquiring a portfolio of a dividend stocks. Unfortunately, over the past couple of years, many companies have had to cancel, or reduce, their dividend payments to try and ease cash outflows during the pandemic.
The good news is, it appears the disruption of the pandemic is coming to an end. Many companies have restored their cancelled dividends over the past 12 months. Some have even boosted their payouts, or declared special dividends, to reward shareholders for their patience.
And this is why I am planning to double down on my passive income strategy in 2022.
Searching for passive income
I am investing a lump sum of £50 a week to hit my income goals. This is not enough to generate a significant annual passive income, but I think it will help me build a solid foundation for my portfolio.
Indeed, a lump sum of £50 a week is equivalent to £2,600 a year. If I can grow this annual contribution at an annual rate of 10%, I believe I can build a nest egg of £42k within a decade. If I can earn a dividend yield of 8% on this balance, I can produce an annual income of £3.4k.
These are just ballpark figures. There is no guarantee I will achieve an annual return of 10% for the next decade. Nor is there any guarantee there will be any stocks on the market that offer a yearly recurring income of 8%. Still, I think this provides an excellent roadmap for me to follow over the next few years.
The companies I would buy to hit these targets are a mix of income and growth stocks. On the income side, I already own British American Tobacco. This firm currently offers investors one of the highest yields in the FTSE 100. It yields around 8%, at the time of writing.
Another stock I would buy (which is not really thought of as an income play) is Games Workshop. This wargames miniature designer, producer and marketer, has large profit margins, a strong balance sheet and earns high returns on its investments.
As a side effect of this, the company throws off cash. Management often returns this cash to investors with regular and special dividends. Therefore, while the firm might not have the highest dividend yield, it is a high-quality income stock with growth potential.
I think this combination of income and growth from corporations like British American and Games Workshop can help me meet my income and growth goals. However, growth is not guaranteed. Either company may be forced to cut their dividends at a moments notice, and they could suffer headwinds from rising costs or a fall in consumer spending.
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Rupert Hargreaves owns British American Tobacco. The Motley Fool UK has recommended British American Tobacco and Games Workshop. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.