36% off! Why is this returning equity stock in my secondary income portfolio?

It seems like everyone is always sending me the latest second income scheme. Whether it's affiliate marketing, online courses or buying marketing equipment (seriously?). While some of these ideas sound promising, I just don't have the time to devote to them.

Instead, I maintain my belief that the easiest way to create a second income stream is to buy shares in an ISA. Sure, it takes a little time to grow into something big, but it requires a lot less effort than other methods.

For investors, a Stocks and Dividends ISA helps to achieve a reasonable return by reducing tax liabilities. UK residents can invest up to £20,000 a year in an ISA and any remaining profits are completely tax-free.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

There are a number of options when it comes to ISAs, so it is recommended that investors take the time to explore their options and find the one that best suits their financial goals.

What to look for in dividend stocks

A good dividend stock is one from a company with a reliable history of regular payments. A nice 10% yield means nothing if the payments don't happen! And trust me, when things get tough and profits dwindle, dividends are often the first things to be cut.

For a decent income, I think the dividend portfolio should have an average yield of around 6%. The yield usually ranges from 1% to 10%, but don't be fooled – the highest yield does not always equate to the best investment.

That's why I think this dividend stock makes a good addition to my portfolio.

An undervalued stock with growth potential

British multinational consumer goods company Reckitt Benckiser (LSE: RKT) manufactures a wide range of health, hygiene and nutritional products. Its main products include household names such as Lysol, Dettolagain Enfamil.

Earlier this year, a lawsuit linked to baby formula led to significant financial and reputational damage that hurt its share price. The issues seem to have been resolved but any further claims could hurt the share price again. For now, it has recovered well and is up 16% over the past six months, but remains 36% off its all-time high.

As a well-established brand with a history of strategic acquisitions, the £33bn company also has valuable intangible assets such as intellectual property. However, it has a huge debt burden, with total liabilities of £18.3bn and net debt of £8.1bn. Naturally, this is a risk that investors should consider.

The latest trading update for Q3 revealed that it is on track to meet its full-year revenue and profit targets. It faced some challenges in its Food division this year due to the Mount Vernon tornado. However, both the Health and Hygiene sectors reported strong performance, which helps balance their overall growth strategy. The company's CEO, Kris Licht, highlighted progress in reshaping its operations for efficiency and shareholder returns, focusing on a simplified business model.

Dividend-wise, its yield is a modest 4% but based on its history, I expect this to increase. The payouts have been reliable and have been growing at a rate of 5.62% over the past 15 years. Also, the 12-month average price is £54.18 – up 10% – so that could add to returns.