3 passive income ideas I’d consider

One of my favourite passive income streams is investing in UK dividend shares. I like this because I can benefit from the profits of professional management and world class companies, without having to lift a finger myself.

Here are three UK dividend shares I would currently consider as passive income ideas for my portfolio.

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Passive income ideas: Direct Line

One UK share I’d consider for passive income is insurer Direct Line. With its 7.9% yield, the shares will hopefully continue to be a strong source of income. That’s just counting ordinary dividends – this year the company also paid a special dividend of 7.6p per share. It benefits from a well-known brand that ought to be positive for its customer acquisition costs. The insurance business is durable and Direct Line’s strong position means that I see strong future prospects for it.

One risk is lower profits as the UK moves to curb renewal premium prices for insurers.

9%+ yield: Imperial Brands

One of the passive income ideas I already use in my own portfolio is tobacco maker Imperial Brands. The company is a large multinational manufacturer, which owns brands such as John Player Special and Rizla. In the past couple of years, it has streamlined its business, reduced its dividend, and set out a new strategy to help boost cigarette sales in the face of declining demand.

Even after the cut, these shares yield 9.1%. That means that Imperial Brands is one of the most lucrative passive income ideas among FTSE 100 members when it comes to dividends. The declining cigarette usage rate remains a risk at the company, though, as it could lead to smaller future revenues and profits.

Passive income ideas: Income & Growth Trust

Far less well known but also potentially rewarding for my portfolio is the Income & Growth venture capital trust. As its name implies, this trust invests in small companies with the aim of generating both capital growth and income for shareholders.

The dividends tend to be unpredictable, as they depend on the performance of the underlying businesses. Last year’s payouts totalled 14p. This year has been rewarding so far, with a 5p interim dividend. One risk here is that any economic downturn could hurt sales at the growing companies in which the trust typically invests.

How I’d seek passive income from these UK dividend shares

Passive income isn’t supposed to involve work. So I wouldn’t be buying these shares and then spend hours tracking their price movements and comparing them to the broader market. Instead, having bought them, I would simply sit back and wait for passive income to accrue over time. It’s never guaranteed, as dividends can be suspended or cancelled. But one of the benefits of investing in a diversified group of companies is that even if one stops its dividend, that only represents one part of my portfolio.

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Christopher Ruane owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

This post was originally published on Motley Fool

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