Generating a second income from investments can make a huge difference to our lives. Maybe we want to top up our salaries, or to make retirement easier.
The obvious way to do this is to invest in stocks paying a dividend. Naturally, it’s worth remembering that dividends are by no means guaranteed. But if I pick wisely, I can hope to make it more likely my dividend payments won’t be in jeopardy.
So, what are my top picks for a second income? Let’s take a closer look.
Lloyds
Lloyds (LSE:LLOY) recently lifted its dividend payments to 2.4p per share from 2p. That’s a considerable increase and one the market had been hoping for. Moreover, City experts are forecasting dividends to rise further to 2.7p and 3p in 2023 and 2024 respectively.
As such, the dividend yield is currently 4.7%, but the forward yield, taking City forecasts into account, reaches 6.25% for the full year 2024. The dividend cover is a very solid three times. In other words, on a trailing 12-month basis, Lloyds has paid out approximately 33% of its earnings as dividend payments to shareholders.
It certainly has the capacity to raise dividends on its current performance.
My forecast for Lloyds is also positive. The thing is, higher interest rates are good for banks, until they’re not. In other words, if it gets too high, debt can turn bad and borrowing demand plummets.
But in the medium-to-long run, I’m expecting rates to sit above the average of the last 10 years, but below where they are now. This would be necessary in a sticky inflation environment, but also something of an ideal situation for banks — high net interest income but lower impairment costs than we’re seeing right now.
Lloyds’ focus on the UK concerns some investors, but it’s cheaper than it’s peers as a result of this. I’ve topped up my position a few times recently.
The Renewables Infrastructure Group
The Renewables Infrastructure Group (LSE:TRIG) is approaching its 10th birthday. Founded in 2013, this green energy fund owns assets worth an impressive £3.7bn.
The trust currently offers an attractive 5.5% dividend yield — far above the index average. It trades with a price-to-earnings ratio around six — less half the index average. On that alone, it looks very attractive.
While I like several other renewable energy trusts, including Greencoat UK Wind, The Renewables Infrastructure Group boasts a more varied portfolio than its peers.
It’s owns a balanced and diverse set of assets in multiple geographies, reducing the risks from over-concentration in individual assets, technology types, weather systems, taxation, and regulatory changes.
However, it is worth noting that The Renewables Infrastructure Group is still quite focused on wind. So naturally, if there is a dearth of wind, the trust’s assets would struggle to meet demand.
Despite this, I still think it’s an excellent dividend stock that would help me earn a sustainable second income.
