Here's how I can invest £200 a month to generate an income of over £7,100!

Buying stocks for income has worked for millions of people for centuries.

It doesn't always work: assignments are not guaranteed, so it's important to choose carefully.

But by taking the time and research to try to buy into great companies whose shares offer both good share value and solid income prospects, I think I can aim to build long-term passive income streams even with relatively modest offerings.

If I had £200 left a month to put into this plan, here's how I could target an annual income of £7,100 over the long term.

Buying stocks that generate income that you didn't earn

The key to this process is finding the right type of stocks. I want to buy from companies that I think can generate a lot of cash that they can use to pay dividends in the future.

Although I am focused on income, I want to make sure that I am not paying too much for the shares, because otherwise I run the risk of selling the shares in the future for less than what I paid, even if I received dividends. on the way.

Even the seemingly best assignment can be disappointing. So I would divide my portfolio into different companies.

One share you can consider buying now

As an example of the type of share that I think investors (including new ones) should consider buying to try to establish a long-term income stream, consider what I have: Diageo (LSE: DGE).

The company owns a number of premium beverage brands, ranging from Johnny Walker to Smirnoff. The market for alcoholic beverages is huge and I expect it to stay that way. Having premium brands gives Diageo pricing power. That helps it generate greater free cash flow. That has allowed it to raise its dividend every year for more than three decades.

Will that continue? Younger consumers drink less alcohol now than previous generations and Diageo has struggled with how to cope with declining demand in Latin America.

But looking at the overall picture, I'm excited about the long-term profit prospects of owning the stock.

Benefits can be added!

Currently, Diageo's dividend yield is 3.1%. So for every £100 I invest today, I expect to earn around £3.10 in dividends a year if the payout per share stays where it is now.

In the current market I would target a higher average yield – say 7% – while sticking to blue-chip stocks in proven businesses.

If I invested £200 a month and reinvested dividends along the way (a very powerful move known as compounding), at an average yield of 7%, I would be earning over £7,100 in dividends after 20 years.

I will take the first step now!

That plan strikes me as realistic, affordable, and potentially very profitable.

That for £200 a month, more or less, my first move would be a quick one, now. I can set up a shares trading account or a Stocks and Shares ISA and set up my regular monthly contributions.