4 smart stock picks from the FTSE 100 to consider for a chunky second income

Jon Smith reveals several top stocks he likes at the moment — from property and telecommunications — for second income ideas.

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December can typically be a rather expensive time of year for most of us. Yet instead of focusing on the outgoings, I want to concentrate on building a second income. Over time, it can reach to a level where I can afford to be less concerned about my spending habits. With that in mind, here are four FTSE 100 stocks I’d look to add to an income portfolio.

A play on the property sector

A couple of the stock ideas come from real estate investment trusts (REITS). Due to the way the firms are structured, a certain amount of the profits have to be distributed to shareholders as a dividend. This makes it appealing to me when trying to find a reliable source of second income.

Both Land Securities Group (6.49%) and Unite Group (3.55%) are options I’d want to buy (the current dividend yields are in brackets).

My thinking here is that both stocks have a large amount of potential to pay out more income in the future. Right now, both the commercial and residential property sectors aren’t doing that well. High interest rates are making debt expensive. Lower tenant demand is also a factor at play.

Yet when the economic cycle turns and we enter a new growth phase, all of this should change. In that case, I’d expect higher profits from the firms, boosting the dividends per share. Of course, I don’t know where the share price will be, but if I assume it stays the same then the overall yield will be higher.

As a risk, I don’t know when the property market will recover. It could leave me holding these stocks for well over a year before I see any positive green shoots.

Streamlined telecom giants

Another area I’d pick up some dividend shares is in telecommunications. This includes Vodafone (10.18%) and BT Group (6.33%).

Both companies are looking to streamline and become more efficient. For example, Vodafone announced large job cuts at the start of the year, and recently announced it was selling its Spanish division for £4.4bn.

The transformation efforts (BT Group announced a new CEO in July) and strategy changes will hurt in the short term. But in years to come, I think both companies could be in a stronger place.

Therefore, I think it’s a smart idea to consider buying the stocks now with their generous yields due to the underperforming share prices. Then if things do go my way, I’ve locked in the share price at a cheap level.

The concern I’d flag up here is that there’s no guarantee either business does find the light at the end of the tunnel. Both could suffer and lose market share if the management teams don’t get it right.

But I’d consider adding all four ideas to an income portfolio to grow my dividends over time.

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Land Securities Group Plc and Vodafone Group Public. 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.

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