3 stocks to generate a second income

Investing in dividend shares is a perfect way to generate a second income. Here’s three stocks that have major potential to enrich shareholders.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of British pound coins falling on list of share prices

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Earning a second income doesn’t always have to involve clocking up more hours in the workplace. It can be achieved through investing in stocks that pay dividends too. That’s why I personally save to invest in income shares every month.

Here’s three UK stocks that I think have the potential to continue rewarding shareholders with a growing second income stream for many years to come.

Financial services powerhouse

Pensions and insurance giant Legal & General (LSE: LGEN) is one of my favourite stocks for generating reliable income. It has around £1.4trn of assets under management and has steadily increased its payout for decades.

Should you invest £1,000 in Blackrock World Mining Trust Plc 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 Blackrock World Mining Trust Plc made the list?

See the 6 stocks

Today, the dividend yield is a market-thumping 7.6%. And as things stand, that could rise to 8% next year. Normally such a high yield might mean a dividend cut was in the works. However, I don’t think that’s the case here.

For 2023, the analyst consensus is for L&G to earn 34.6p per share and pay out 20.5p per share. That indicates the dividend is covered approximately 1.7 times by earnings. Generally, a dividend cover of around two is considered a safe coverage. So the anticipated payout looks sustainable for now.

Longer term, the global demand for pension services will increase as populations live longer. And L&G’s asset management business should grow as stock markets rise over time.

Accelerating demand

If the world is to ever reach net-zero emissions, then there’ll have to be an unprecedented mining boom. That’s the extraction (in vast quantities) of not only rare earth elements, but of all kinds of metals and minerals.

Copper is needed for running electricity, while steel is used to make wind turbines. And electric vehicles require lithium and cobalt. I think a great way to invest in this long-term theme is through BlackRock World Mining Trust (LSE: BRWM).

This trust invests in many companies extracting the metals that make the modern world. These include mining behemoths BHP, Rio Tinto, and Glencore.

There’s been chronic underinvestment in the mining sector in recent years. So I expect this supply-demand imbalance to keep metal prices elevated for the foreseeable future. That should equate to rising profits and payouts.

At 760p per share, the trust offers a dividend yield of 4.3%.

Resilient brands

With a dividend yield of 2.2%, drinks giant Diageo isn’t normally considered an income stock. However, the company has a remarkable record of over two decades of dividend growth.

And management last week reiterated its medium-term guidance for “sustainable organic operating profit growth in the range of 6% to 9% for fiscal 23 to fiscal 25“.

This increasing profitability is driven by the firm’s premium brands, which include Johnnie Walker whisky and Don Julio tequila.

Diageo’s dividend per share has gone from 62.2p in fiscal 2017 to an expected 80.5p this year. I anticipate it will only head north in the coming years.

However, it should be noted that a deep recession might severely impact the performance of these stocks. Commodity and equity markets could fall, and consumer spending on alcohol could take a big hit. If earnings go south, then dividends could be cut to preserve capital.

However, over the long term I expect these stocks to prove resilient and offer investors fantastic second income potential.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in BlackRock World Mining Trust Plc, Diageo Plc, Glencore Plc, and Legal & General Group Plc. The Motley Fool UK has recommended Diageo 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

How much passive income can Legal & General shares generate over 10 years?

Legal & General shares offer very sizeable dividend payouts. Dr James Fox takes a closer look at the dividend forecast…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

How to build a Stocks and Shares ISA for the AI era

Artificial intelligence is likely to create a lot of opportunities for investors in the years ahead. So now could be…

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Investing For Beginners

I asked ChatGPT for the best bargain in the FTSE 100 and it got it horribly wrong

Jon Smith disagrees with the pick from ChatGPT when it comes to bargain FTSE 100 shares and counters the points…

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

With a 9% dividend yield, WPP is now topping the FTSE 100 – but I’m not convinced

Our writer breaks down how to spot a dividend yield that’s backed by sustainable earnings growth – and one that…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

Nvidia stock: is $200 in 2025 now looking like a real possibility?

Nvidia stock has jumped from $100 to $165 in the blink of an eye. And Edward Sheldon believes that $200…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Passive income for Millennials: 3 UK investment ideas

More and more people aged between 29 and 44 are turning to the stock market in search of passive income.…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Investors could target £6,531 in annual dividend income from £11,000 in this FTSE 100 financial giant. It looks very undervalued too!

This FTSE 100 firm has delivered very high dividends in recent years, which analysts predict are set to go even…

Read more »

Exterior of BT Group head office - One Braham, London
Investing Articles

Should I add to my BT holding now, with the share price near a 12-month high?

BT’s share price has risen a long way from this year’s traded low, but this doesn't necessarily mean it's overvalued.…

Read more »