£5k in savings? Here’s how that can unlock a £255 monthly second income

Earning a second income doesn’t mean having to get a second job. In fact, by leveraging dividend opportunities in the stock market, investors can get some extra income in their pockets passively. And for those with £5,000 sitting in the bank, kick-starting this process today could eventually lead to a £255 monthly second income. Here’s how.

Capitalising on dividends

Right now, WPP (LSE:WPP) currently offers the highest dividend yield in the FTSE 100 at 9.4%. That means for every £100 invested, WPP shareholders are earning £9.40 a year without having to do an ounce of work. And when scaled up to £5,000, that translates into an annual second income of £470.

Obviously, while an extra £470 is nice to have, it’s not a life-changing sum. But what if investors decide to delay the reward and reinvest this money back into buying more WPP shares? Assuming that dividends continue to be paid out at the same rate, this level of passive income starts to snowball exponentially.

After five years, it grows to £750. After 10 years, it reaches £1,200. And after two decades, the income would be worth close to £3,060 with a £32,530 investment portfolio. That’s a 550% return on the initial £5,000 investment, which also generates £255 a month – not bad considering all investors have to do is sit and wait. And if WPP also goes on to deliver even modest capital gains, the income stream could be even bigger.

Setting expectations

While the thought of transforming £5,000 into over £32,000 is understandably exciting, there are some important caveats to keep in mind. A big assumption of this projection is that the stock continues to pay out a 9.4% yield. And sadly, there’s simply no way of guaranteeing that to happen.

As one of the world’s largest advertising enterprises, WPP’s been heavily investing in artificial intelligence (AI) to optimise operations, drive growth, and uncover hidden opportunities for clients. Yet despite these efforts, the business is struggling.

Many clients have discovered they can use AI to handle their marketing efforts internally, applying considerable pressure to this business. This pressure has only been compounded by macroeconomic forces, particularly in China, resulting in client attrition. Subsequently, profit warnings have been issued, sending the WPP share price crashing by almost 50% since the start of 2025.

This downward trajectory is why the yield’s so high. With profits shrinking, the expectation is that dividends will soon follow. And that means today’s attractive 9.4% yield may simply be too good to be true.

The bottom line

The story for WPP is far from over. A new leader is being brought in to deliver a brand-new strategy and steer the ship back on course. We’ve seen several remarkable FTSE turnarounds succeed in recent years, with Rolls-Royce and Premier Foods arguably two of the most successful.

So if WPP can do the same, then not only does that make today’s 9.4% yield attractive, it also opens the door to potentially explosive capital gains. However, it’s simply too soon to tell. And right now, the risk’s too high for my tastes. Fortunately for investors seeking a second income, there are plenty of other dividend opportunities to explore.

The post £5k in savings? Here’s how that can unlock a £255 monthly second income appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.