Buying a range of high-quality FTSE 100 dividend shares is one way to try to build passive income streams.

That could start generating passive income in a matter of months. For the patient though, taking a longer-term approach can be lucrative.

Passive income now, or more later?

For example, say someone has £20k to invest. At the moment, the FTSE 100 yields 3%. However, I see it as realistic to target 6% even while sticking to shares from the index, as 3% is only the average. Some members yield more, some less.

At a 6% yield, £20k could generate £1,200 a year of passive income, starting in year one. That works out at £100 a month on average.

But an alternative would be to initially reinvest dividends, a financial technique known as compounding.

Doing that, after 20 years compounding at 6% annually, the investment ought to be worth around £64,143. If that then yielded 6%, it would produce roughly £321 a month of passive income.

Some practicalities of investing

The FTSE 100 contains Britain’s biggest public companies by market capitalisation. Many are long-established and profitable businesses.

But past performance is no guarantee of what to expect. The same is true for dividends. Just because a firm pays them now does not mean it will definitely do so in future. So it makes sense to choose carefully when hunting for shares to buy and also to diversify the portfolio across different ones. Twenty grand is ample for that.

But what way to invest? As fees can add up over time, shopping around can be a smart move, whether for a share-dealing account, Stocks and Shares ISA or trading app.

Here’s a share to consider for passive income

I mentioned above that the portfolio ought to be diversified. One FTSE 100 share I think it is worth investors considering for its passive income prospects is 5.6%-yielding Aviva (LSE: AV). The insurer’s share price has moved up 81% over the past five years.

That represents quite the turnaround. In 2020, Aviva sharply cut its dividend. Since then though, it has been growing the annual payout. Its business also looks in better shape than it did a few years ago. Getting rid of many overseas operations and acquiring UK rival Direct Line has allowed Aviva to concentrate more on its home market, where it is the market leader.

That, combined with a huge customer base and deep underwriting experience, has helped it to generate sizeable free cash flows. In turn, they can fund the chunky dividend.

I see a risk that Aviva’s size might work against it if, for example, a smaller rival tries to gain market share by competing heavily on price. That could eat into Aviva’s profit margins by defending its market share.

From a long-term perspective though, I see a lot to like here.

What income stock do we like better than Aviva Plc right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Christopher Ruane does not hold any positions in the companies mentioned.