How much would someone need in the stock market to earn a £500 weekly second income?

Ever thought about putting money into some shares to try and build a second income through dividends?

After all, Britain’s blue-chip FTSE 100 firms pay out well over £1bn per week on average in dividends.

That goes to shareholders who do not have to do anything to earn it, other than owning those shares.

Dividend shares can be lucrative

Building a second income by setting up a portfolio of dividend shares sounds pretty straightforward. It can also be lucrative.

But there are risks too. Dividends are never guaranteed to last. Share price falls can also eat into capital value, even if dividends keep flowing.

On the other hand, dividends can grow – and so can share prices.

Clearly, it makes sense for an investor to take some time to figure out what shares might best suit them in their hunt to balance potential rewards and risks.

Here’s what it takes to earn £500 per week!

Say someone’s second income target is £26k annually, which works out at £500 per week.

How much they need to invest will depend on the average dividend yield of their portfolio. Yield is basically what dividends one expects to earn in a year, expressed as a percentage of the purchase price.

At the moment, the FTSE 100 index yields 2.9%. Say someone targets double that: a yield of 5.8%. In today’s market I still think that is possible while sticking to high-quality shares.

At a 5.8% yield, a £26k annual second income would require investing around £448k.

Slowly building up an income machine

£448k is a lot of money. But it does not need to be invested all at once.

In fact, someone could start from zero today, then drip feed money in over time, building up to that goal.

Say they did that with £1k a month, compounding it at 5.8% annually. Within 21 years, the portfolio ought to be worth more than the necessary £448k.

At that point, instead of continuing to compound the dividends, they could start taking them out as a second income, without needing to put another penny in.

Choosing the right way to invest

There are different platforms the person could use for that regular saving, compounding, and investment.

So it makes sense for them to contrast and compare share dealing accounts, Stocks and Shares ISAs, and trading apps.

One income share worth considering

At the moment I think an income share investors should consider is Legal & General (LSE: LGEN).

At 8%, the yield is well above the target I mentioned above. The FTSE 100 financial services firm aims to grow its dividend per share annually, though in practice no dividend is ever guaranteed.

The company has a large customer base. Its brand is strong and it has deep experience in its field. A focus on retirement-linked products means it can tap into a large, long-term market.

The planned sale of a large US unit could mean future cash flows are smaller, threatening the dividend.

But on balance I see Legal & General as a well-proven business with long-term cash generation potential.

The post How much would someone need in the stock market to earn a £500 weekly second income? appeared first on The Motley Fool UK.

More reading

• Stocks and Shares ISA vs Cash ISA: how much to target a £10,000 passive income?
• An 8.6% yield? Here’s the dividend forecast for a FTSE 100 income hotshot
• 3 brilliant dividend shares to consider buying for 2026
• UK dividend shares: a once-in-a-decade shot at bagging these 3 ultra-high yields?
• Does an 8.1% yield make Legal & General shares a slam-dunk buy?

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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