Time is money: when aiming for a second income, both play a key role
Itâs an unavoidable fact: earning a second income requires a certain amount of time and money. Usually, having more of one means less of the other, and vice versa.
Working a second job is a time-heavy but cash-free way of generating extra earnings. Investing in dividend shares flips that equation â it requires little spare time but a steady flow of cash.
Yet time still plays a huge role. The more invested upfront, the less time it takes before meaningful returns begin to flow in.
The real question is, whatâs the optimal balance?
A path to financial freedom
The first step is deciding how much to contribute each month. Some people are naturally frugal, while others struggle to save. But I believe everybody should be able to put aside around 10% of monthly earnings. I think this should be considered the bare minimum for serious investors.
With the average UK monthly salary of £3,000, that would mean contributing £300 each month to investing. Sinking that into a dividend-rich portfolio with market average growth and a yield of 7%, the pot could reach roughly £58,000 in a decade (with dividends reinvested). At that stage, the portfolio would be paying out more in dividends than the monthly contributions.
But don’t stop there â at break-even, things are just warming up. Another decade and we could be looking at £1,000 a month in dividends â more than enough to supplement a State Pension.
A higher earner might manage £500 a month, building closer to £100,000 over 10 years and generating around £580 a month in dividends. Thatâs the equivalent of a part-time job without clocking on a single shift.
Another decade and it would have compounded to over £330,000, paying almost £2,000 in dividends. Now thatâs enough for a comfortable retirement!
Picking the best dividend stocks
Some attractive high-yielding UK stocks include Assura (LSE: AGR), OSB Group, Land Securities Group and Supermarket Income REIT. All currently offer yields of around 7%, backed by solid dividend coverage and long records of consistent payments.
Iâm particularly keen on real estate investment trusts (REITs) such as Assura. Due to favourable regulations, REITs must distribute 90% of profits to shareholders. That makes their dividends more reliable than most. The drawback, of course, is that it leaves less room for reinvestment and growth.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Even so, Assura’s a standout. The business delivers high margins and a return on equity of 10.66%. And despite the share price climbing 23% so far this year, it still looks undervalued. Trading at just 47.4p per share, the stock changes hands at only eight times earnings â less than half the UK market average.
So whatâs the catch?
The obvious risk is exposure to the UK property market, which hurt the stock in recent years. If commercial real estate weakens again, rental income could fall, threatening the dividends that investors rely on. Slow growth’s another consideration â REITs rarely deliver blockbuster capital gains.
Still, for those seeking a reliable second income without sacrificing too much time, I think dividend stocks like Assura are worth considering. Sure, itâs no Rolls-Royce, but remember, slow and steady wins the race.
The post Time is money: when aiming for a second income, both play a key role appeared first on The Motley Fool UK.
Should you invest £1,000 in Rolls Royce right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls Royce made the list?
More reading
- How to aim for a second income from scratch with just £5 a day
- Will I make more from putting £2k in growth shares or income stocks right now?
Mark Hartley has positions in OSB Group. The Motley Fool UK has recommended Land Securities Group Plc and 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.
