A second income’s a great way to safeguard against life’s unexpected problems. Should it be a sudden medical emergency, an untimely redundancy, or just that winter coat you’ve always wanted. As quoted by legendary investor : “ .
” Easier said than done though. Working a second job or starting an online business is time consuming. Not everybody has the luxury of that free time.
There is however, a way to build a second income by investing in the stock market. Companies that pay dividends are a particular favourite of income investors. They reward their shareholders with regular payments calculated as a percentage of the amount invested.
This is called the . Investing a lump sum into a portfolio of dividend-paying shares is one way to earn some extra income. But, of course, it comes with risk.
Dividends can be cut or reduced and share prices can fall. As always in life, there’s no such thing as easy money. But this risk can be minimised by carefully evaluating and selecting the right shares.
Which stocks to pick? For sufficient returns, the stock should have a yield above 5%. Yields drop as prices rise, so a good dividend payer should increase dividends in line with growth to maintain consistency. As such, a good dividend payer should have a long track record of increasing payments.
The occasional reduction due to economic conditions is acceptable. But stocks with a chequered history of dividend cuts and dips are best avoided. Beyond dividends, a reliable income stre.