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I think a second income is a good way to supplement my regular income. If it is enough to cover my daily expenses I can save a lot at the end of the month.
Another way to build for additional income is to buy shares in companies that pay dividends.
Naturally, this method has advantages and disadvantages. On the other hand, it does not require time or effort. However, it can take years of regular investing before it starts to turn a profit – and there's no guarantee that it will. But if it does, it may result in a useless stream of income.
The trick is to choose the right share.
Ideally, an income-oriented portfolio should include a mix of stocks from different sectors and regions. This helps avoid losses from industry-specific risks and local economic issues.
Home is where the heart is
One example is a UK house building company Taylor Wimpey (LSE: TW.). It has been a reliable earner recently, increasing annual dividends from 0.7p per share in 2013 to 9.58p in 2023 – annual growth of 29% a year.
The government's new housing policies may soon increase the demand for his services, increasing his income. When dividend-paying companies enjoy a profitable quarter, they often increase dividends to shareholders. The share price is already up 42.3% in the last 12 months.
Its price-to-earnings ratio (P/E) is still quite low, at 23.6. So it may have more room to grow.
However, revenue is localized and highly dependent on the UK economy. This was most evident during the financial crisis of 2008 when the share price fell by 97% in 18 months. If the same event happens again the price can crash again.
Another high paying dividend property worth considering ITVwith a yield of 6.3%. But let's look further afield.
An international powerhouse
With a market capitalization of £60bn, British American cigars (LSE: BATS) is one of the dividend stocks with a yield of 8.6%. The tobacco giant is a much bigger global outfit than Taylor Wimpey, generating almost half of its revenue in the US. Europe is the second largest market, with others coming from Asia and Africa.
This makes it difficult to change the single market.
However, new smoking laws are forcing tobacco companies to adapt. It has poured a lot of money into switching to dangerous, next-generation products like vapes. As a result, it is currently unprofitable and is carrying £40bn in debt.
As next-generation products gain popularity, analysts expect the company to return to profitability this year. Salaries are expected to grow at an average of 44% annually going forward.
Another good international dividend payment to consider is HSBCwith a yield of 7%.
It's a waiting game
With a share portfolio that has yielded 7% on average, a daily investment of £10 could earn around £255 in profits after the first year. After 10 years, my pot would have grown to around £63,740, assuming a 5% rate of return ( FTSE ratio).
By then, I'd be breaking even, earning around £10 a day on assignments. Another eight years and my pot would have reached £200k, paying me a second income of over £12,000 a year in dividends – or £33 a day.
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