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Although the stock market is enjoying a rally in 2024, there are still plenty of investment opportunities to secure a second small income. On the other side of the FTSE 350about 70 stocks currently offer a dividend yield of at least 5% or more. And just under 80 companies are sitting on a record of consecutive dividend increases of at least five years or more.
In other words, there are still many opportunities to earn money that you can take advantage of. And over time, investing a £20,000 annual ISA allowance today can generate more than £250 a month passively. Here is the way.
The earning potential is amazing
Historically, the FTSE 100‘s offered a dividend yield of about 4% per year. But instead of injecting money into an index fund, investors can get more selective by choosing individual stocks directly.
There is no denying that this investment method comes with high risk and requires more effort in terms of research, analysis, and portfolio management. However, when done successfully, it opens the door to very impressive benefits and income potential.
Consider a home improvement business Howden Joinery (LSE:HWDN). The company is a vertically integrated designer and supplier of fitted kitchens working directly with tradesmen and contractors. As housing in the UK continues to age, the need for home repairs has increased over the years. And it’s the low spirit that Howden has been busy with.
It paid a dividend of 2.4%. However, while this payment may not seem impressive today, it may gradually change over time.
Why? Because since 2013, the shares are up almost 300%. And as a result, investors who bought and held the stock over the past 10 years are now reaping an annual yield of close to 8%, as well as reaping a total shareholder return of 252% over the same period.
In other words, a £20,000 ISA back in 2013 would now cost £76,000 in returns like Howden’s compared to the £37,960 that would be achieved with an FTSE 100 index tracker. Following the 4% withdrawal rule translates into a secondary income worth £3,040 (just over £250 per month) compared to £1,520.
Nothing is harmless
Howden Joinery’s growth potential still looks strong, in my opinion. Management has been investing heavily in infrastructure to support high volume and demand, as well as recent expansion in the area of furnished bedrooms and international markets.
However, the entry of new opportunities and regions comes with its own set of challenges that may make it difficult for Howden to maintain its historic momentum. In other words, there is no guarantee that it can continue to deliver a positive share price and earnings performance.
Nevertheless, it serves as an excellent example of how, if stock picking is done correctly, investors can improve their financial prospects and earn a small second income.
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