2 ways I’m trying to grow my passive dividend income by £1,000 this year

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Passive dividend income is one of the main reasons why I invest in the stock market. It allows me to generate money via dividends that I can either spend or reinvest. At the same time, I’m still holding the shares and so can benefit from any potential rise in the share price over time. I don’t want to become complacent with the dividend shares I own though, so here’s how I’m thinking of growing my income this year.

Building up my investment pot

I want to assume that I currently make £1,000 a year in passive dividend income from my portfolio. Given my risk tolerance, my average dividend yield that’s helping me to achieve this is 3%. This means that my overall investment value is £33,333.

It might sound obvious, but the easiest way for me to increase the income I receive is to invest more. If I have the ability to invest another £33,333 right now, or a few thousand each month, then I can double my dividends received. 

There are always risk, of course. But as long as I invest in a mix of stocks, I wouldn’t be increasing my risk by doing this. In fact, the broader the scope of companies I own, the lower my risk becomes of just one defaulting or cutting dividends.

However, I’m thinking about growing my income because I don’t have a large amount of cash lying around to invest. So I need another option.

Tweaking the dividend yield

One option I can look at is investing in higher-yielding stocks. This would allow me to increase the passive dividend income I receive without having to put fresh money in. 

For example, I could look to sell some stocks and buy others with dividend yields of around 6% instead. Using my numbers from earlier, my pot of dividend shares worth around £33,000 would now make me £2,000 a year. I’ve doubled the amount of dividends I’ll be receiving.

I might wonder why everyone isn’t doing this. The reality is that this is a high-risk approach. Firstly, I’ll incur transaction fees in selling and buying these stocks. Depending on the share price I bought my original stocks at, I might be selling for a loss.

Added to this are issues with buying stocks with high yields. It’s not always the case, but usually higher yields mean higher-risk. For example, the yield might be high because the share price is falling. So I need to be careful that I don’t sacrifice future income for short-term potential.

Sustainable passive dividend income

Whether I choose to increase the size of my investments or simply to flip to a higher yield, I want to ensure my income from dividends is sustainable. The last thing I want to do is change things that are working and end up with something that isn’t. However, provided I invest in good companies with reliable dividends, I can look to build on my existing portfolio successfully.

The post 2 ways I’m trying to grow my passive dividend income by £1,000 this year appeared first on The Motley Fool UK.

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