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Image source: Getty Images<\/p>\n
Ever thought about putting aside a few pounds each day to buy dividend shares and try to build up some passive income streams?<\/p>\n
It is an approach that can work. It does not even need a lump sum of cash, or large contributions.<\/p>\n
Matching the approach to your own situation<\/p>\n
Say someone chooses to put aside \u00a33 a day. It may not sound like much, but over time things can build up. That \u00a33 a day would add up to \u00a31,095 in a year.<\/p>\n
It is possible to invest more, of course, and hopefully earn more passive income<\/a>. <\/p>\n Indeed, one thing I like about owning dividend shares as a way to generate income is just such flexibility of the approach. It can be adapted to suit each person\u2019s own circumstances.<\/p>\n Setting up a way to buy shares<\/p>\n When I talk about putting aside a few pounds a day, dropping some coins in a jar could work fine as a place to start (and could be a good visual reminder to put in some money each day).<\/p>\n But a coin jar alone will not work when it comes to actually buying shares!<\/p>\n So a practical move would be hunting around for a good option when it comes to share-dealing accounts<\/a>, Stocks and Shares ISAs<\/a>, and trading apps<\/a>.<\/p>\n Understanding the economics of income shares<\/p>\n Not all businesses pay dividends, even when they are profitable and have done so in the past.<\/p>\n That is why savvy investors keep their portfolio diversified across a range of companies. <\/p>\n They also look carefully when deciding what shares to buy. How likely does a company look to pay dividends in future and at what level? How attractive is its current share price?<\/p>\n The FTSE 100 currently yields 2.9%. That means that \u00a3100 invested today ought to generate \u00a32.90 per year in dividends.<\/p>\n How much might such an approach earn?<\/p>\n I think in the current market an investor could realistically target a 6% yield (\u00a36 of passive income annually for each \u00a3100 invested), while sticking to high-quality companies.<\/p>\n 6% of \u00a31,095 is around \u00a366. So, \u00a33 a day for a year invested at a 6% yield could generate \u00a366 of passive income annually.<\/p>\n But things can get more lucrative over time. <\/p>\n Say someone invests \u00a33 a day for 10 years, reinvesting (compounding) dividends. Compounded at 6% annually, that would mean the portfolio should be worth over \u00a314,800. <\/p>\n At a 6% dividend yield, that could earn passive income of some \u00a3890 annually.<\/p>\n On the hunt for income shares to buy\u2026<\/p>\n