The UK stock market has gained ground in the past month. But I still see plenty of big dividend yields that look good for building a second income.
If the FTSE 100 is set for a new bull run, how long might these big yields last?
Housebuilders offer some good yields. Taylor Wimpey is on a forecast 7.9% now, even though the share price is up from from its summer low.
There’s 7.3% on the cards at Persimmon too, though its share price hasn’t regained quite as much.
That’s a cyclical sector, damaged by a property downturn and high mortgage rates. But I see years of income from it in the future.
Two more of my long-term favourites are on high forecast yields now too. I’m talking about British American Tobacco, and National Grid. Neither is my top pick for today, but I like the look of both of them.
British American Tobacco shares are down 25% in five years, over fears for the end of tobacco. But I can’t see that happening in my lifetime, and the 8.5% yield looks tempting.
National Grid is another favourite, with its yield at 5.4% now as the price has fallen on fears for the gas part of the business. I have family members who own National Grid shares, and I really should buy some.
But my pick today is in one of my all-time top sectors. I’m talking insurance, and Legal & General (LSE: LGEN).
I currently hold sector mate Aviva. But I’ve held Legal & General shares in the past, and probably will again before much longer. Actually, with an 8.5% yield, it might be very soon.
The shares have been sliding for a couple of years, in line with the financial mini-crisis around inflation and interest rates. But buy a sector when it’s down, that’s what I say.
Forecasts show decent earnings growth in the next couple of years, and the dividend rising to nearly 10% by 2025.
How much second income might Legal & General get me? I have to stress that there are short-term risks still, clearly while inflation is still so strong.
And there’s no guarantee behind dividend yields — they’re not at all like Cash ISA interest.
But what if the dividend and the share price remain the same for the next 10 years, and I invest a Stocks and Shares ISA allowance of £20k?
At the share price at the time of writing, I’d get 8,780 shares.
If I stash them away for a decade, and reinvest all my dividends, my initial £20k could more than double, to £45,220. And, at the same 8.5% return, it could then generate my £3,844 per year.
Eggs and baskets
Putting an entire ISA allowance into one stock adds some risk. But if I have good diversification over the years, that could even it out.
Then again, maybe a year’s ISA split between Legal & General, National Grid, Taylor Wimpey and British American Tobacco?
I like the sound of that.