How to invest £355 a month in UK shares for a second income that aims to beat the State Pension

Securing an early second income can pave the way to supersize earnings in retirement. And looking at the UK State Pension today, that might be essential. Why? Because even the full £230.25 a week currently being offered falls short of the bare minimum experts believe individuals need to survive retirement.

Fortunately, by investing in top-notch UK shares, it’s possible to not only earn some passive income but also generate double what the State Pension provides. Here’s how to do it with just £355 a month.

The investment plan

On a yearly basis, the UK State Pension works out to be £11,973. The objective of this investment strategy is to double that, unlocking a second income stream of £23,946 for a combined total of £35,919 a year. And to achieve this, investors can use dividends.

Right now, the FTSE 100 offers a yield of 3.06%. That means for every £100 invested in a low-cost index tracker fund, an investor will earn £3.06. And scaling this up to the £23,946 target means a portfolio will need to be worth £782,550. Needless to say, that’s not pocket change.

Fortunately, there’s a powerful alternative. Through stock picking, investors can concentrate their capital exclusively in quality high-yield shares. And it’s not unrealistic for a custom portfolio of UK shares to generate a yield closer to 6%, dropping the required portfolio size to £399,100.

Again, that’s still substantial. But if someone were to invest £355 a month at a 10% total return (6% from dividends + 4% from capital gains), it would grow into a £400,000 portfolio in roughly 24 years.

Earning a 6% yield

When venturing into the realm of high-yield stocks, some caution’s needed. That’s because higher payouts are often paired with higher risk. So which shares should investors consider in 2025?

One stock I’ve got my eye on right now is Domino’s Pizza Group (LSE:DOM). The UK’s largest pizza chain has had a bit of a rough ride lately, dropping 41% since the start of the year. That’s obviously painful for existing shareholders. But for new investors, it might be a lucrative 6.1% dividend opportunity.

The company’s currently navigating a pretty tough environment, with most consumers cutting down on discretionary takeout spending. As such, Domino’s’ growth has ground to a halt. This has only been made worse by rising costs, squeezing profit margins. But management isn’t sitting idle.

Despite the rising pressure, the balance sheet remains sturdy. And leadership’s using this financial flexibility to invest and reposition the business for recovery.

Product innovation, such as its Chick ‘N’ Dip, seems to be resonating with consumers despite lower spending. A new loyalty programme’s being launched next year, and an automated logistics centre is currently being built to boost efficiency and operating margins in the medium term.

There’s definitely a big question mark over when the takeaway cycle will heat up again. And there’s still plenty of operating risks for management to tackle in the near-term. But with a price-to-earnings ratio of just 9.2, investors are setting the bar pretty low.

As such, even a glimmer of recovery might be all that’s needed for Domino’s’ shares to surge. And it’s not the only stock I’ve got my eye on that could help investors beat the State Pension.

The post How to invest £355 a month in UK shares for a second income that aims to beat the State Pension 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 Domino’s Pizza Group 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.

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