Why now may be the one opportunity in ten years to build this income stream

Given the recent policy actions from the Bank of England (BoE), I believe further interest rate cuts are coming in the next year. As a result, the investor’s ability to generate high levels of income from a traditional savings account should be reduced.

This is why I feel that buying stocks as a secondary income source will become more popular.

Go down

At the November policy meeting, the BoE committee decided to cut interest rates again, down to 4.75%. Based on current market expectations, three more cuts are expected next year. This will reduce the base rate to 4%. Of course, this is not guaranteed. But the way to go with interest rates is quite low.

This means that the income that an investor can get by simply leaving money in the bank should also fall. Given that banks also take a profit margin, if the base rate is 4% the actual interest rate for the customer is about 3.5%.

I refer to it as a once-in-a-decade opportunity to switch to another source of income because this is the typical period of the interest rate cycle. If an investor can quickly move away from excessive interest-earning savings before rates drop significantly, it can be a smart move. It may take another decade before we see interest rates rise and return to current levels.

Opening options

Another side of the opportunity is to buy dividend stocks. This too can be time sensitive. In general, the lower interest rates are, the better the economy is doing. This helps in driving the stock market rally. The dividend yield can decrease in this situation, as the calculation factors in the dividend per share compared to the share price. So if the stock price goes up but the dividend stays the same, the overall yield will go down.

Therefore, an investor may want to consider buying high dividend stocks while yields are still attractive. One example of research would be They are Gup (LSE:ZIG). paid a dividend of 6.88 %. Over the past year, the stock is up 3%.

The company’s fiscal year runs from April to April, so the results released in late July cover part of 2024. It showed a 23% increase in revenue, with underlying profit before tax up 8.9% from last year. Earnings per share also increased by 7.5%.

Zigup has paid dividends consistently over the past decade. I think it is sustainable enough to continue in the future. There is continued demand in the sector from commercial and private clients. In addition, there is a great opportunity to grow in Europe outside of the current Spanish operations.

Another risk with Zigup is that it needs to pay almost constant attention to the aging of the fleet, as older vehicles need to be replaced. This represents a huge expenditure.

From one to another

By switching funds to savings accounts that may receive lower income and buying dividend stocks like Zigup with good yields, I feel that investors may be interested in this opportunity in the coming months.