How I’d spend £9 a day on FTSE shares to target £1,000 in passive income

One of my favorite passive income ideas is to buy dividend-paying blue-chip stocks. That’s why I have some FTSE stocks with reasonable dividend yield, like British American Tobacco and Vodafone.

Here is an example of how I can try to build up to a four-figure annual passive income stream, for under £10 a day.

What are FTSE shares?

There are many stocks to choose from when trying to create an income stream. But I will focus mainly on stocks in the FTSE index. Specifically, I will consider my portfolio FTSE 100 sharing.

To enter one of these indexes, a company must have a certain value. In itself that does not mean that they are a solid business (or a solid investment, which is not enough about the question of value). But reaching a certain size often means that a business has to do it right commercially. So, it can be used as a starting point before doing my own research to identify the right stocks for me.

As for the FTSE 250 contains fast-growing companies like Price, businesses in the FTSE 100 tend to be larger companies in mature industries. Indeed, British American and Vodafone fit that description.

Since passive income is my goal, that suits me. A mature company with strong cash flow and limited growth opportunities will hopefully pay dividends. British American yields 7.1%, for example, while Vodafone offers 8.3%.

Create a portfolio

Both companies also have a large amount of debt, which is a dividend risk. All stocks carry risk, so in order to reduce the potential impact on my income stream if I invest in a company that looks disappointing, I will diversify my portfolio across a number of different FTSE stocks.

To choose them, I will look at the possibility of future income that I thought I could get from them. At a basic level, it means considering potential profits, along with things that might prevent those profits from being paid out as dividends, such as debt or capital expenditures needed to make the business profitable.

Grow your passive income stream

I will then start buying those stocks. To do this, I would save £9 a day in a stock trading account or a Stocks and Shares ISA.

Why £9? This would be an affordable amount for me – but it could add up. That would give me £3,285 a year to spend on dividend stocks. Investing in FTSE companies at an average of 5%, for example, should earn me £164 in annual passive income.

But every year I will save more and should get dividends from the newly bought stocks and the ones I already hold.

If I reinvest the dividends – something known as compounding – that can help me reach my passive income target even faster. Doing so and still assuming an average 5% dividend yield, in six years I should have been earning over £1,000 in dividends every year!