A second income for life? This fledgling dividend hero could be my saviour

The cost of living is still rising so I need a second income for life right now. It appears an investment in this stock could give me that.

| 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.

positive mental health woman

Image source: Getty Image

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.

The cost of living has been rising for a while. Granted I’m financially comfortable, but I have a marriage, another child, and mortgage on the way. I need a second income right now. Gen Z and Millennials love incorporating side hustles into their lives. The only difference with me is that my side hustle is to let markets or investment managers do the work for me.

A lifetime of passive income

As I still have (hopefully) more years in the tank than I’ve lived, I often opt for growth investments. But life has become more expensive. Thus, my dependency on my portfolio to generate additional income has grown.

Dividend stocks and equity income funds specialise in distributing regular income to investors. But the yields can be volatile depending on the economic environment.

So, for a durable and consistent second income, I could look no further than dividend heroes. These stocks exist to provide a lifetime of growing income for shareholders.

Take the City of London Investment Trust. It has been paying and growing dividends consistently for 56 years. I’m 33 years old, so generating income for longer than I’ve been around is impressive in my book.  

Fledging ‘second income’ heroes

Officially, dividend heroes are stocks that have historically increased dividends every year for at least 25 consecutive years. But rather than just investing in one of many established dividend heroes, I’m hunting down those that could turn into the next generation of stars, especially among investment trusts. The up-and-comers list is a specific grouping, overseen by the Association of Investment Companies (AIC). It covers trusts that have increased dividends for at least 10 years, but less than 20. There’s no guarantee these trusts will make it to dividend hero status, but all are well on their way.

My eyes are on the Henderson High Income Trust (LSE:HHI). This does exactly what it says on the tin. It invests in quality companies, both large and small, to deliver high dividend income and capital growth. It has consistently raised its dividends each year for the last decade. Within this period, it has wildly outperformed its benchmarks. It has a 6% dividend yield. This is already high — and to think it could continue to grow for the next 40 years at least certainly whets my appetite.

However, by purchasing some of its stock, I’d face higher charges than with its peers. In addition, the portfolio has a high level of borrowing. With interest rates higher than usual, the portfolio could be under pressure. Higher gearing also implies amplified losses for the underlying portfolio if things turn sour.

Investing on the side

Side hustles are admirable, but I’m after something that takes up less of my time.

Henderson High Income Trust is some way away from dividend hero status. It has another 15 years of growing dividends to reach this mark.

Nevertheless, I think this trust has the makings of a second income that can grow and last a lifetime.  I just need to do more digging to ensure this is the most suitable lifetime commitment for me. Did I mention earlier that I was due to get married?

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.

Henry Adefope 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.

More on Investing Articles

Investing Articles

£3,000 in savings? Here’s how I’d use that to start earning a monthly passive income

Our writer digs into the details of how spending a few thousand pounds on dividend shares now could help him…

Read more »

Investing Articles

Here’s what dividend forecasts could do for the BP share price in the next three years

I can understand why the BP share price is low, as oil's increasingly seen as evil. But BP's a cash…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

This FTSE 100 Dividend Aristocrat is on sale now

Stephen Wright thinks Croda International’s impressive dividend record means it could be the best FTSE 100 stock to add to…

Read more »

Investing Articles

3 shares I’d buy for passive income if I was retiring early

Roland Head profiles three FTSE 350 dividend shares he’d like to buy for their passive income to support an early…

Read more »

Investing Articles

Here’s how many Aviva shares I’d need for £1,000 a year in passive income

Our writer has been buying shares of this FTSE 100 insurer, but how many would he need to aim for…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

1 incredible growth stock I can’t find on the FTSE 100

The FTSE 100 offers us a lot of interesting investment opportunities, but there's not much in the way of traditional…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With an £8K lump sum, I could create an annual second income worth £5,347

This Fool explains how a second income is achievable by using a lump sum, investing in stocks, and the magic…

Read more »

Investing Articles

Here’s what dividend forecasts could do for the BT share price in the next 3 years

With the BT share price down so low, the dividend looks very nice indeed. The company's debt is off-putting, though.…

Read more »