I’d start generating lifelong extra income by putting aside £50 a week

Earning extra income without working is great for me. It’s better if the money keeps coming in every year.

I try to achieve this goal by investing in a portfolio of dividend stocks. If I choose well, I hope the dividend grows – and can continue until I sell the stock. Of course that doesn’t happen, because dividends aren’t guaranteed. But if I invest in a diverse group of high-quality companies, I think that’s a realistic goal.

Here’s how to double your income from scratch, with £50 per week.

Build capital to invest

Putting aside £50 per week adds up to an annual sum of £2,600 which can be used to buy shares. Dividends from these stocks will hopefully serve as additional income.

I now plan to put any spare cash I have into my Stocks and Shares ISA before the annual contribution deadline next week. But even though I had no capital to start with, putting aside regularly £50 a week through thick and thin meant that I would soon have a four-figure sum in an ISA that I could use to start buying dividend stocks.

Pick a stock

Many investors buy stocks for the prospect of rising prices, because the business is improving or simply because they are currently undervalued.

But with additional income as my goal, I’m not going to focus on the potential for the share price to rise. However, I will ask a few questions to assess the appropriateness of the given section for my approach.

One is whether the business offers potential for future dividends. Does it have a business model that can generate huge profits, but the freedom to pay it as a dividend instead of using it to pay off debt, for example?

I will also look at the share price. While share price growth is not my goal, I still don’t want to overpay. The amount of additional income I can earn depends on the average dividend yield of my portfolio and is partly a reflection of the price I paid for the stock.

Risk must also be considered. I will assess the risk of the stock before I buy it and also if I already own it. For example, I recently sold my password Vodafone sharing. Although I find the company’s 8.6% yield attractive, I see heavy debt as a risk to profitability. To reduce risk, I also maintain my portfolio with a wide variety of stocks.

Putting £2,600 into shares with an average 8.6% return (like Vodafone) would hopefully net you around £224 a year. The high yield for a FTSE 100 company, though, I would expect the portfolio to return more than 5% or 6% overall in the current market.

An investment of £2,600 at an average return of 6% should yield a profit of £156 per year. If I keep saving £50 a week to invest, over time I can hopefully build my portfolio – and the extra income it creates for me.