Income shares could help me turn £300 into £500. Here’s how

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Young female analyst working at her desk in the office

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If I want to build more wealth in the long term, one activity I think can help me is investing in income sharing. I don’t even need big money to get started. I was able to start building a profit-sharing portfolio with a relatively modest amount.

For example, if I have £300 in reserve today, here’s how I would try to convert it to £500 using such an approach.

How can income sharing increase my wealth?

If I own earnings shares, I am entitled to dividends paid out by the company. Dividends are payments that businesses make to shareholders as a reward for owning shares.

Companies that are consistently profitable will find it easier to make such payments than companies that continue to lose. But there is no obligation for companies to pay dividends, even if the business is good or they have paid regularly in the past. They may decide to reinvest the profits back into the business.

If I buy income stocks and do receive dividends from them, over time the money can add up. I can choose to combine dividends, which means reinvesting them in more stocks. Doing so can help me grow my wealth faster. If I invest £300 in shares with an average dividend yield of 5%, for example, compounding could mean that in 11 years I will own £500 worth of shares.

The example above assumes that stock and dividend prices remain constant, which in practice may not be the case. But it shows how, simply by buying and holding the right share of income, compounding can help me grow my fortune.

Find stocks to buy

But if I want to start building a profit-sharing portfolio, how do I do that?

Since dividends are essentially a way of distributing profits among shareholders, I wanted to find a profitable company. But with a long-term view, I will focus on finding companies that are not only profitable today but are expected to stay so far into the future.

To do that, I will look for a competitive advantage that can help the company to continue to make a profit. Consider AstraZeneca as an example. It has patents on various blockbuster drugs. That means being able to produce them and effectively not face competition. Even if the price is set, such a position should give the business a competitive advantage.

Does that make it a good income investment for my portfolio?

Currently, AstraZeneca’s dividend yield is 2%. That’s well below the 5% yield I used in my example above. A market cap of over £170bn looks high to me for a company that made a profit last year of around £100m. So even though AstraZeneca as a business has attributes that I like, at its current stock price I wouldn’t buy it for my portfolio.

Long term investment

As a long term investor, I’m in no rush. If I keep looking, I’ll be hoping to find some promising revenue streams that will offer me exposure to excellent business at an attractive price.

That’s the kind of income sharing I’ll use to build my portfolio — and hopefully my fortune.



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