Lifelong passive income for the price of a daily London coffee? Here’s how

Last week, I went to an upscale coffee shop in central London. One of the coffee options available for purchase is £5.50. Now this is not a post about inflation issues. But it got me thinking. If I take this £5.50 and instead use it to try and create passive income every day, will the results work over time?

Get my ducks in a row

Let’s clarify a few things. I don’t want to invest £5.50 a day in the stock market. Transaction costs would make this pointless. Instead, I will save that amount and, at the end of each month, invest £165.

I also do not claim that I will only invest this amount. If I have spare cash unspent during the month, I can always put this to work as well. But I want to highlight that even with a relatively small amount of money every day, I can make passive income.

Finally, I acknowledge the difficulty of trying to predict income potential when using dividend stocks. This is because dividend income varies depending on the financial performance of the business. I’m going to assume the current dividend yield remains the same, but clearly there are assumptions being made here.

How the numbers start to add up

Every month, I will put £165 into dividend stocks. I’m going to buy a different stock every month so that, over the course of a year, I’ll have twelve portfolios. From now on, I will try to build my stock in that particular company.

Whatever dividends I get, I will reinvest to buy more shares. In terms of dividend yield, I think the 6.5% target is achievable.

Let’s ratchet this up in the course of the next 15 years. At this point, I should have a pot worth £46.3k, which means that for the next year, I could earn over £3k in passive income, without investing any more money.

Given my current age, this allows me plenty of time to enjoy this income later.

Dividend stocks I like

Times will change as I invest further down the line, but there are certain stocks I like, based on historical performance.

For example, I’m pretty sure I’ll include like National Grid and British American Tobacco in the portfolio at some point in the next decade. Both stocks have more than two decades of consecutive dividend growth.

I am also open to new ideas that will come in the future. For example, if International Consolidated Airlines Group since it pays dividends, it’s definitely a stock I’m considering adding.

Ultimately, even by skipping London coffee in the morning, I can be on the way to a second income.