3 stocks investors can buy now for a second income!

Dr James Fox details three of his favourite dividend-paying stocks that can help investors secure a second income from their investments.

| 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.

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

Image source: Getty Images

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.

Many people invest for the opportunity to earn a second income. We can do this by investing in dividend-paying stocks.

But, like most investors, I want to ensure I’m earning as much as I can in dividends, without sacrificing sustainability.

As such, a stock market correction is the perfect time to invest. That’s because when share prices fall, dividend yields go up.

So, here are three stocks I think investors should be piling into.

Phoenix Group

Phoenix Group (LSE:PHNX) went ex-dividend this week. The payment was equivalent to around 4.8% of the current share price and contributed to its sizeable 9.3% dividend yield — one of the largest on the FTSE 100. The yield, which was already sizeable, has been pushed upwards by its falling share price. The stock fell 10% over the last month as fear hit the finance sector.

The UK’s largest long-term savings and retirement business is performing well, despite the sell-off that impacted other finance stocks more than Phoenix. It recently announced that, on an IFRS basis, adjusted operating profits grew to £1.24bn, up from £1.23bn in 2021.

The group saw its assets under administration fall to £259bn from £310bn over the last year. And that’s something of a concern amid the current volatility. However, it’s a business model designed to be resilient throughout the economic cycle.

Lloyds

I’m buying more Lloyds (LSE:LLOY) shares after the correction. The stock is down 10% and the dividend yield is up to 5.2%. Moreover, analysts see the dividend rising to 2.7p and 3p in 2023 and 2024 respectively, representing a near 6.5% yield in 2024.

More broadly, I like Lloyds and its ‘boring’ business. Lloyds doesn’t have an investment arm and because of its funding composition, it has higher interest rate sensitivity than other banks.

This means it’s less diversified than other banks, but right now, it benefits from interest rate hikes more than most. But there’s also a downside to this. At the moment, Bank of England rates are very high, and this means more debt turning bad as borrowers struggle with repayments.

But with rates forecast to fall to an ideal 2%-3% in the medium term, I think now is a great time to buy.

Vistry Group

I’ve recently consolidated some of my housing stocks into my top pick for the sector, Vistry Group (LSE:VTY). Down 5% over a month, the stock’s dividend yield now sits at 7%.

The housebuilder recently reported better-than-expected full-year profits and said market conditions were improving. It also said that private sales have ticked upwards in recent months despite interest rate rises — the sector needed some good news.

But, more important, Vistry has some insulation from the private market’s woes because of its large ‘partnerships’ or affordable homes business. Demand is certainly more resilient here.

With an improving interest rate forecast, and recession fears reducing, I’m expecting conditions to improve considerably into 2024. I definitely see some upside potential.

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.

James Fox has positions in Lloyds Banking Group Plc, Phoenix Group Holdings plc and Vistry Group Plc. The Motley Fool UK has recommended Lloyds Banking 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.

More on Investing Articles

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »