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I’m always mulling over new ways to build a steady and reliable passive income stream. Whether it’s sitting pretty on the sofa, walking the dog or simply sipping a pint, extra cash means more free time to do as I please.
One popular and increasingly accessible way to do this is via small, consistent investments in dividend-paying shares. By cutting out just one or two small expenses a day and saving £5 to invest, the journey towards financial freedom could be within reach.
Plus, by slowly reinvesting the dividends over time, the investment could rapidly compound, snowballing into a lucrative chunk of savings.
So how would someone start building such a portfolio? I find it best to pick a mix of both income and growth stocks across various sectors, thereby protecting against a failure in one area.
Here are a few reliable UK stocks to consider.
Primary Health Properties
Primary Health Properties is a real estate investment trust (REIT) focused on community health centres. Regulations require it to return at least 90% of profits to shareholders, giving it a reliably high dividend yield of around 7.5%.
Impressively, its dividend has grown at an average of 3.5% a year for nearly 30 years, offering both income and growth – a rare combo in today’s market. The risk is that if the UK housing market takes a dip, the company’s shares will likely be hit too.
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Tesco
For those seeking stability, Tesco remains one of my favourite defensive dividend stocks. With a yield of about 3.3%, payouts are well-covered by earnings. Consumer demand tends to stay steady in tough economic periods, making it a reliable income option with consistent dividend growth and pedigree.
Yes, it faces strong competition from other major UK supermarkets but for now, it’s leading the pack.
RELX
RELX (LSE: REL) is an Anglo-Dutch multinational provider of information-based analytics across legal, health, risk and business sectors. Operating for 32 years, annual revenue has grown rapidly to £9.43bn.
It offers only a modest yield of around 2% but its capital growth is where it shines – the shares are up over 100% in the past five years.
That equates to annualised returns of almost 15% a year!
Notably, it also enjoys impressive dividend growth. The full-year payout has increased every year for over a decade, at an average rate of around 9% annually. That kind of consistent growth offers the potential for long-term income expansion.
Naturally, there are some risks, including reliance on cyclical corporate spending and regulatory pressures across its data-heavy operations.
The road to £1k a month in passive income
Consider starting with a lump sum of £5,000, evenly split across five dividend stocks. Then invest an additional £1,825 each year (£5 a day). A decent portfolio could achieve an average yield of 7% and dividend growth of 2% annually.
After 20 years, the pot could potentially grow to around £127,150 (with dividends reinvested), generating approximately £12,780 a year in dividends. That’s over £1,000 a month in passive income — just from a small initial investment and regular contributions.
This example shows that financial freedom needn’t require large sums or complex strategies — just consistency, patience and smart stock choices. By blending some high-yield stocks with steady growers, a well-diversified portfolio could lead to dependable, increasing income.
