£3 a day now could earn me £5 a day of extra income in future. Here’s how.

Story by Christopher Ruane

People do not always think about the future, but it lies ahead of us all. Thinking about how to earn money in future as well as now seems like prudent financial planning, in my view. Buying shares with an eye to holding them for the long term is one way I hope to earn extra income.

Doing that could help me set up extra income streams for when I retire, for example.

It does not need to be a costly approach. If I could spare just £3 a day, here is how I would put it to work to try and set up long-term income streams.

Earnings dividends from proven blue-chip businesses
The income streams I have in mind are the dividends some businesses pay when they generate extra cash they do not need.

So I would be looking to buy shares in large, blue-chip businesses I expect can continue to generate such cash flows and hopefully pay them out as dividends.
Nothing is ever guaranteed in life – and that is certainly true of dividends, even when a company has paid them before. So I would use my £3 a day to build a portfolio of different high-quality shares I think can pay juicy dividends in future.

To get the ball rolling, my first move would be to set up a share-dealing account or Stocks and Shares ISA. In fact, I would do that today and put my first £3 in, starting the habit as I mean to continue.

But while that sounds simple, what about choosing the shares I hope will pay me my extra income?

That takes time and some effort. I would want to research carefully to find shares I felt offered me a stake in a good enough business at a reasonable enough price.

To illustrate the sort of share I am looking for, we can take British Land (LSE: BLND). I do not own the share — but I think it helps show some of what I am looking for when hunting for income shares.

The commercial landlord is in a market I expect to see very long-term demand. Perhaps office demand will come down, hurting sales. Maybe online shopping will lead to more retailers closing their physical stores. But over time, the prime property British Land owns can be repurposed.

That estate is unique. Only British Land owns its prime Paddington Central development. If a business wants to site itself there, its landlord will be British Land. That gives the FTSE 250 property developer pricing power. The shares have a 5.4% dividend yield.

In today’s market though, I think I could do even better! That 5.4% is already above the average FTSE 250 yield, but I believe I could earn a 7% yield sticking to blue-chip shares.

Using a long-term approach to my advantage
Instead of taking extra income now, I would reinvest the dividends to buy more shares. That is known as compounding.

Putting in £3 a day and compounding at 7% annually, after 15 years I would be earning extra income of £5 a day, on average. I could keep compounding – or start spending!

Dividend re-investment

In your accumulation stage the difference re-investing even a modest dividend can make to your Snowball.

Remember though, the later u join a trend the more chance u have of losing some of your hard earned.

The next dividends to be received next week and the cash return from ADIG on the 10 Jul, current destination unknown.

Thursday 20 June

3i Group PLC ex-dividend payment date
AVI Global Trust PLC ex-dividend payment date
Baillie Gifford China Growth Trust PLC ex-dividend payment date
Barings Emerging EMEA Opportunities PLC ex-dividend payment date
British Land Co PLC ex-dividend payment date
Diverse Income Trust PLC ex-dividend payment date
Fidelity China Special Situations PLC ex-dividend payment date
Mercantile Investment Trust PLC ex-dividend payment date
Templeton Emerging Markets Investment Trust PLC ex-dividend payment date

Five investment trusts wiping the floor with their open-ended siblings

Three-quarters of investment trusts have outperformed open-ended funds with the same manager and strategy, according to Wealth Club.

By Emma Wallis,

News editor, Trustnet

Investors would have been considerably better off choosing investment trusts over their open-ended siblings, according to new research from Wealth Club, which compared returns from 80 fund/trust pairs over the past decade.

Three-quarters (75%) of investment trusts delivered higher returns than their sister open-ended funds over 10 years on an underlying net asset value (NAV) basis, outperforming by an average of 5.3 percentage points.

Source: Wealth Club

The data is less conclusive on a total return basis, given that investment companies’ share prices have not, on the whole, kept up with their net asset values, resulting in pervasive discounts. Indeed, at present investment trusts sit on an unusually wide discount compared with their long-term history.

Over the long term, however, share price volatility accounts for a diminishing proportion of total returns, so although investment trusts’ share price returns have lagged their open-ended siblings over five years, they have outperformed over 10 years, as the chart below shows.

Source: Wealth Club

Five trusts in particular stand out for trouncing their open-ended siblings, outperforming by an average of 59.6 percentage points on an NAV basis.

The Montanaro European Smaller Companies trust is managed by George Cooke and Stefan Fischerfeier. The pair also managed the Montanaro European Smaller Companies fund until 31 March 2024, when Cooke stepped down from that particular strategy, although Fischerfeier continues to run it.

The trust has a £264m market capitalisation and its discount has widened by 3.2% over 10 years.

Performance of Montanaro European Smaller Companies fund vs trust over 10yrs on a total return basis

Source: FE Analytics

The JPMorgan UK Small Cap Growth & Income trust was recently formed through the merger of JPMorgan UK Smaller Companies and JPMorgan Mid Cap. Georgina Brittain and Katen Patel managed both trusts previously and now run the new entity.

For this study, Wealth Club compared the track records of the JPMorgan UK Smaller Companies trust with the open-ended fund of the same name.

Performance of JPMorgan UK Smaller Companies fund vs trust over 10yrs

Source: FE Analytics

In third place, the Schroder Asian Total Return trust and fund are both managed by Robin Parbrook, who was recently named FE fundinfo Alpha Manager of the Year, and King Fuei Lee.

Their best ideas portfolio of 40-50 stocks is complemented by derivatives to provide an element of capital preservation.

Performance of Schroder Asian Total Return fund vs trust over 10yrs

Source: FE Analytics

Nicholas Hyett, investment manager at Wealth Club, said investment trusts tend to outperform for three reasons: “gearing, reduced liquidity concerns and the opportunity to buy back their own shares”.

“Investment trusts let you invest in things like private equity and infrastructure, that are otherwise the preserve of institutions and the mega wealthy,” he explained.

“Not having to worry about meeting investor redemption requests at short notice means that investors can take positions in small illiquid companies they might otherwise avoid. A wider opportunity set, together with the ability to harvest the premium that is usually associated with illiquid stocks, has the potential to boost returns over the long term.”

Share tips 2024: MoneyWeek’s roundup of the top share tips this week – here’s what the experts think you should buy

Five to buy
One to sell
The rest…

BY KALPANA FITZPATRICK
LAST UPDATED 14 JUNE 2024
If you’ve been keeping a close eye on share tips 2024, then don’t miss this weekly round up of the top stocks to consider for your portfolio each week.

The MoneyWeek share tips 2024 guide pulls together some of the best UK stocks from some of the top share tipsters around.

As well as the UK financial pages, we look at publications across the pond for investors who want to diversify their holdings internationally.

From investing in UK equities, European stocks, to finding the best performing stocks in the S&P 500 – here are our top share tips of the week.

Share tips 2024: top picks of the week
FIVE TO BUY

1. QinetiQ (LON: QQ)
   The Telegraph
   QinetiQ’s shares have doubled since 2017. The defence contractor’s upgraded guidance, rising revenue, stable profit margin and potential for future acquisitions reflect its solid financial position. With Nato members expected to increase defence spending and a modest price/earnings (p/e) ratio, the company’s capital growth potential and share buyback programme make it an attractive investment. Some investors may be tempted to sell after large gains, but it’s “more logical” to keep buying. 451p
2. Sanderson Design Group (LON: SDG)
   The Sunday Times
   Sanderson Design Group, a luxury interior-furnishings business hit by the housing market slowdown, has made significant improvements despite challenging conditions. It has increased inventory, boosted margins, and pocketed record licensing revenues from its designs. It has a solid balance sheet and has seen strong growth in the US. Falling inflation and increased consumer confidence after the general election could help the stock. 106p
3. Oakley Capital Investments (LON: OCI)
   The Mail on Sunday
   Private equity has a bad reputation, but Oakley Capital Investments is different. It focuses on helping companies grow by working with management and taking a conservative approach to debt. It has a portfolio of 28 companies, and recently invested in a French healthcare consultancy and a German broadband business. Oakley’s shares are a “bargain”, with the group’s investments valued at 693p a share. The stock has risen by 18% in two years and there is further to go. 490p
4. On the Beach (LON: OTB)
   Shares
   Investors are taking notice of On the Beach (OTB) after positive first-half results and an analyst upgrade. The online package holiday provider trades at just 8.6 times its September 2025 forecast earnings and is returning to meaningful dividend payments. There is potential for further market-share growth in the long-haul and premium holiday markets. OTB has also secured a partnership with budget carrier Ryanair, and consumers’ appetite for travel is expected to remain healthy. OTB is a “big value opportunity” for investors. 142p
5. Paragon Bank (LON: PAG)
   Investors’ Chronicle
   Paragon’s strong interim results bode well. With robust deposit growth, a higher net interest margin, and improving mortgage and commercial lending, underlying pre-tax profit at the specialist lender rose by 13.5% to £146m. Signs of recovery have prompted Paragon to upgrade lending and net-interest margin guidance for the year. It’s “difficult to argue with the quality of the earnings and the expected shareholder returns”. 749p

ONE TO SELL

1. Petrofac (LON: PFC)
   Investors’ Chronicle
   Petrofac has missed a coupon payment and is in default. The energy engineering and services company is seeking a cash injection of $300m to avoid insolvency, but not all lenders support the rescue package. Liabilities amount to $1.7bn, and Petrofac experienced a $222m cash outflow in 2023. Despite an $8bn order backlog, new contracts, and the wider industry’s rude health, Petrofac’s future looks uncertain. “Most investors probably left the sinking rig some time ago,” but those that didn’t will hope there’s something to salvage now its shares are no longer suspended. 22p

THE REST…
Taylor Wimpey (LON: TW)
The Telegraph
Housebuilder Taylor Wimpey’s outlook is “increasingly upbeat”, with falling inflation, expected interest-rate cuts and a faster-growing economy, leading to higher profitability and dividend growth. Given the 6.3% dividend yield, solid balance sheet and strong competitive position, Taylor Wimpey looks appealing. Buy (152p)

National Grid (LON: NG)
This is Money
National Grid is raising £7bn through a rights issue to support a £60bn plan to upgrade its energy-transmission networks. The ambitious proposals reflect a shift towards wind, solar and nuclear power. The underwritten issue ensures National Grid will receive the funds to fuel its growth. Shareholders could end up with 30% more stock in a business with a “decent record, a strong growth agenda, and attractive dividends”. 871p

Currys (LON: CURY)
Shares
Shares in Currys recently surged by 32%, with investors buoyed by the turnaround potential of the electrical retailer and upgraded pre-tax profit guidance. CEO Alex Baldock attributes the success to strengthening performance in the UK, Ireland and the Nordics, with sales and margins improving. Despite the recent rally, Currys’ shares are still trading at a low 8.5 times earnings. Keep buying (80p).

Dr. Martens (LON: DOCS)
Investors’ Chronicle
Dr. Martens’ sales for the year ended in March fell 12%, leading to a 43% drop in pre-tax profit to £97.2m. The boot maker slashed the dividend, while North America remains challenging. The firm expects a difficult year. Despite a new CEO and cost cuts, “the road to recovery looks long and exhausting”. Sell (86p).

The Motley Fool

Story by Zaven Boyrazian, MSc

REIT good idea ? sorry but a British take on a Yorkshire accent.

Real estate investment trusts (REITs) can be a powerful addition to a retirement portfolio. These types of businesses are notorious for offering impressive dividends that can build into a chunky passive income with minimal effort. And when left to reinvest over the long term, a carefully constructed portfolio of top-notch stocks could even transform into a £500,000 nest egg.

The power of investing regularly
Dividend investing often doesn’t get associated with high levels of growth. After all, it’s typically only large mature businesses that redistribute excess earnings back to shareholders. Yet despite this, dividends have historically provided the lion’s share of investment returns. In fact, since 1960, an estimated 85% of gains have come from shareholder payouts.
There are a few reasons behind this phenomenon. However, the leading catalyst is the miracle of compounding. By regularly investing a lump sum each month, as well as automatically reinvesting any dividends received, the number of shares owned in each business increases. For each additional share, more dividends are received when the next payment date comes around. And this process repeats then repeats itself over and over again in a wealth-building loop.

Turning £500 into £500k
Ensuring that a portfolio has a constant, steady stream of capital is essential. The more an investor can spare each month, the better. However, it’s critical to try and mitigate, or better, eliminate any risk of falling short. Why? Because in the long run, missing out on even just one month of investing can leave a lot of money on the table.

To demonstrate, £500 compounded at 9% for 25 years is worth around £4,700. In other words, for each missed month, investors lose almost five grand of wealth. But for those who consistently invest at this rate of return without missing a beat, they can expect to have just over £560,000.

Of course, achieving a 9% return each year is easier said than done. The FTSE 100 has historically only offered around 8%, and over the last decade, it’s actually been closer to 6%. This is where REITs come to the rescue. With their chunky yields and steady share price appreciation, reaching a 9% target becomes a bit more straightforward.

Could buying dividend shares be the key to financial freedom?

 Provided by The Motley Fool

By Charlie Keough

I want to build my wealth by buying dividend shares. I think it’s one of the simplest ways for me to reach financial freedom. After all, creating a stable cash flow that allows me to stop worrying about money is the dream, right?

Compounding gains

I could go on about why I think shares that provide income are an effective way to build wealth. But there is one key reason. That’s because they allow investors to benefit from the power of compounding.

With the dividends I receive, I use these to buy more shares in the companies I own. Through this, it means that I earn interest on my interest. It also means that I’m able to build up my investment pot a lot quicker.

Warren Buffett once said: “If you don’t find a way to make money while you sleep, you will work until you die”. That’s a quote I’ve tried to heavily instil into my investment strategy.

A favourite of mine

In my attempt to achieve financial freedom, I’m turning to the FTSE 100. The index is home to market-leading companies that have stable cash flows and, as a result, rising yields. That sounds perfect.

That said, there are plenty of companies out there that offer a meaty yield. But I only want to buy the best. I don’t want to buy shares today only for the yield to be reduced or cut in the times ahead. There is always that risk with dividends.

The Motley Fool
I’m not going to sugar coat it.

Building a lifelong passive income strategy is not easy. If you really want to retire comfortably you’ll have to put in the work — and the money — to make it happen.

Shortcuts and get-rich-quick schemes seldom work.

As the saying goes, ‘Money doesn’t grow on trees’. However, it can grow in a portfolio of high-yield dividend shares with compounding returns.

With that said, a three-step strategy to building a passive income stream to retire in style.

Step 1: Open a Stocks and Shares ISA
You don’t need a Stocks and Shares ISA to begin investing but it’ll certainly make my money go further.

See, with a Stocks and Shares ISA, I can invest up to £20,000 a year tax-free.

Depending on my returns, the ISA fees are likely to pale in comparison to the amount the tax break saves me. There are several options available for UK citizens to open a Stocks and Shares ISA and start investing today.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Step 2: Invest in a portfolio of high-yield dividend shares
So what shares should I put in my ISA?

While it might seem attractive, it’s usually best to avoid ‘flavour of the month’ shares like booming tech stocks. These might bring short-term gains but usually lack resilience and seldom pay dividends.

Well-established companies that pay high-yield dividends offer more consistent returns even when markets are stagnant.

It’s important I create a diversified portfolio of shares, so I’d add some companies with lower dividends but a more stable share price. I could also add some ETFs to offset unexpected market volatility.

Step 3: Reinvest dividends and contribute further
For the final step, it’s important to ensure I benefit from the magic of compound returns. Using a dividend reinvestment plan (DRIP), I would reinvest my dividends and maximise the value of my investment.

More importantly, I should continue to make some monthly contributions to my investment. Even just a few hundred pounds a month can make a real difference in the long term.

£££££££££££££

If u are investing small sums, u do not need to pay for an ISA until u use up your tax free entitlements, which might change with the next government. With a small but growing account it would be better to use an ISA provider who charges a percentage of your portfolio rather than a fixed fee.