Investing in FTSE shares can be one of the most effective ways to generate passive income.
London-listed stocks are often known for their big shareholder dividends. So rolling those payments back into a stock investment can help keep a pot of money growing.
On top of that, shares often have the potential to deliver capital growth because of a rising share price.
Compounding for longer
Therefore, it’s possible to build the value of share investments so they pay an ever-larger dividend income over time.
Compounding’s an exponential process for any given annual rate of return. That means in terms of absolute pound notes, the biggest passive income returns will likely arrive in the furthest-out years.
So the sooner an investor starts the process of compounding, the better. Age 30’s ideal because there’s a runway ahead of about 37 years before a person can currently collect their State Pension in the UK.
Starting at 30 would give any investor a good shot at building a meaningful passive income to draw in retirement alongside the State Pension.
Embracing the risks
Positive outcomes aren’t guaranteed in this uncertain world. It’s always worth bearing in mind that all businesses and stocks come with risks as well as opportunities.
However, at age 30, I wouldn’t allow the fear of the risks to rule me out of being exposed to the potential. So I’d start right away and choose my first FTSE dividend investment.
There are several attractive dividend-paying stocks to consider for investment. For example, I like the look of FTSE 100 telecoms company BT (LSE: BT.A).
With the share price in the ballpark of 144p, the forward-looking dividend yield is around 5.6% for the trading year to March 2026. That’s a decent amount of potential dividend income when compared to the FTSE 100’s overall anticipated yield running near 3.5%.
BT’s shareholder dividend payments have been fairly stable since the pandemic. But the company has bags of growth potential.
New growth possible ahead
Chief executive Allison Kirkby said back in May the firm has passed its peak of capital expenditure towards the rollout of its full-fibre broadband system. On top of that, the £3bn cost and service transformation programme had completed a year ahead of schedule.
I think that’s potentially good news for the dividend and we could see shareholder payments growing in the years ahead. After all, cash can only be spent once. So if the requirements for reinvesting back into the business for growth are lessening, perhaps there will be more money left to reward shareholders.
However, BT has its specific risks. The business has struggled to maintain its earnings for years and that story shows in the share price chart.
So it’ll take newly resurgent earnings to really get BT motoring. Nevertheless, I’m optimistic about the company’s long-term future. So I’d consider an investment in the stock now, while the dividend yield‘s high.
The post No savings at 30? Here’s how I’d aim for life-changing passive income from FTSE shares appeared first on The Motley Fool UK.
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Kevin Godbold has no position in any of the shares mentioned. 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.
