Starting-off the stock market investing journey can be intimidating. Many of us start from a place of little knowledge about the markets. We might not even have very much money to start with. Even then, I believe that it is a great idea to start investing small amounts in stocks that can build a steady stream of passive income for me over a period of time.
The significance of £10
And I can start with just £10 a week to ensure regularly increasing dividend income over time. This amount is not randomly selected. There is a reason behind it. When I start investing, especially with small sums, I would prefer not to lose any of my money. When I have a bigger portfolio, losses in some stocks can be made up for by gains in others, resulting in net gains. But when I start, I do not have that flexibility.
So, I choose to be especially selective about my stock-picking. Keeping this in mind, I start with FTSE 100 stocks. These represent some of the biggest and the best companies listed on the London Stock Exchange, making them a relatively safe place to start.
How to select the right FTSE 100 stocks
The one challenge with these stocks is that many of their prices are significantly higher than £10. But this should not deter me. Because as per my count, there are at least 40 FTSE 100 stocks, whose share price is lesser than £10 today. And some of them are actually high-quality dividend stocks. By high-quality I refer to three criteria. One, the company is profitable, which means that it can afford to pay its dividends. Two, it has a long history of paying dividends, which indicates that it can continue to pay them in the future as well. And three, its dividend yield is at least higher than the current FTSE 100 average dividend yield of 3.4%.
Best stocks for me to earn a steady passive income
Of these, probably the most attractive is the mining stock Evraz, which is trading just north of £6 as I write. With my allocated investment amount, I can buy five of its shares every three weeks. And here is the best part. It has the highest dividend yield of almost 13% in the entire index! Commodity stocks’ fortunes are susceptible to fluctuations, but I take heart from the fact that it has paid dividends regularly for a few years now. Also, it is a profitable company. I have bought the stock already.
Other stocks I would like in my portfolio include the energy utility National Grid, whose share price is just shy of £10 and which has a dividend yield of 5.2%. I would also watch other FTSE 100 utility stocks like United Utilities, whose share price is just a bit higher than £10. It it were to fall, as can happen during regular trading activity, I would buy it. Utility stocks do not have the highest yields, but they run predictable businesses. Which means what they lack in dividend, they make up for in dividend dependability.
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Manika Premsingh owns shares of Evraz. The Motley Fool UK has no position in any of the shares mentioned. 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.
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