I think that investing in FTSE 100 and FTSE 250 shares is one of the best ways to aim for a long-term second income.
Through a combination of capital gains and dividend income, these UK share indexes have provided an average annual return of 11% in recent decades. While that’s impressive, I’m confident I can beat this figure by investing in high dividend shares.
Here are two FTSE 100 and FTSE 250 shares — along with a popular investment trust — I think could help me hit my goal. Their huge dividend yields can be seen in the table below.
| Stock | Forward dividend yield |
|---|---|
| Aviva (LSE:AV.) | 7% |
| TBC Bank Group (LSE:TBCG) | 7.2% |
| Octopus Renewables Infrastructure Trust (LSE:ORIT) | 8.4% |
If broker forecasts prove correct, a £15,000 investment spread equally across these stocks could give me a £1,130 passive income this year. This is based on an average 7.53% yield. And I’m confident they will give me an increasing income over time by steadily increasing their dividends.
Here’s why I’m hoping to buy them when I next have cash to invest.
Aviva
The financial services industry has significant growth potential as Western populations rapidly age. In the case of Aviva, demand for life insurance, retirement, and wealth products are tipped to soar as the grey tidal wave gains momentum.
While significant, this FTSE 100 company also has other growth levers to draw upon. Take private medical insurance, for instance, a sector in which Aviva is the UK’s biggest provider.
Aviva’s health insurance sales jumped 41% year on year in 2023. This reflected growing pressure on the National Health Service, a phenomenon that is likely to endure due to those demographic changes I mentioned.
Aviva may struggle to grow overall sales if the British economy continues to flatline. But I think the long-term outlook here remains extremely bright.
TBC Bank Group
Buying banking shares can be a great way for investors to make a second income. Regular product fees and the interest charged on loans, usually enable these businesses to pay good dividends even during downturns.
I think TBC Bank is a particularly attractive stock to buy. Its focus on the fast-growing Georgian economy is delivering spectacular results: pre-tax profits here rose 7% in 2023, as retail loan demand leapt 41.2% year on year.
Low product penetration in this market provides plenty of scope for further blistering growth, in my opinion. I’d buy it even though fresh volatility in the global economy could temporarily dent profits.
Octopus Renewables Infrastructure Trust
As the name implies, Octopus Renewables Infrastructure Trust aims to generate big returns from the growth of the green economy. It currently owns 37 renewable energy assets chiefly across the solar and wind categories.
Its strategy is for less than half of the total value of its assets to be located in the UK. This is a good idea in my opinion: consultancy Newton has predicted that UK offshore wind projects could be delayed if steel shortages emerge, while construction costs could also spike.
At present, around 60% of its portfolio is located across a variety of Mainland European countries. This helps to reduce the aforementioned risk, while also minimising the impact of adverse localised weather on group profits.
I think earnings here could balloon as Europe’s dependence on clean energy sources grows.
