£5,000 in savings? I’d aim for a second income worth £10,916 a year

A second income can help alleviate financial pressure further down the line. This Fool outlines how he’d aim to make over £10,000 a year.

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The dream for millions of investors is a second income. Making extra cash without doing little work may sound too good to be true. But actually, through investing in the stock market, it’s more than possible.

I’m targeting dividend stocks to get there. With £5,000 in cash as my starting point, here’s how I’d aim to generate over £10,000 a year.

How much could I make?

While £5,000 is a healthy sum of money, I’m aware investing that alone isn’t going to deliver a spectacular second income straight away.

Assuming a 7% return, that would bank me just £350 a year in passive income. I’m hoping for more than that.

That’s why I plan to contribute a small amount of my salary every month. What’s more, I’ll also reinvest my dividends. That way, I’ll benefit from compounding.

Let’s say I invest £100 a month on top of my initial lump sum and reinvest all the dividend payments I receive. After 30 years, I could be generating £10,916 a year in passive income. I’d also have an investment pot worth over £162,000.

That’s more like it. A second income of that size would go a long way to allowing me to live a more comfortable lifestyle. After all, that’s the goal, isn’t it?

How I’ll get there

But the million pound question is what sort of stocks can help me get there? I reckon ITV (LSE: ITV) looks like a good option.

Its share price has taken a battering. In the last 12 months, it’s down 10.6%. In the last five years, it has seen 45% shaved off its price.

But I think the TV stalwart, at its current price, could be great value. Its yield now sits at 6.8%. That’s twice the FTSE 250 average.

Pair that with its low valuation. And I think ITV shares could be a steal. They currently trade on around 12 times earnings for this year. Forecasts have that falling to nine in 2025.

Bright times ahead

I also think the business has an exciting future. It has struggled recently. Its ad revenues have suffered due to red hot inflation. However, the prospects for its digital platforms look up.

This includes the fast-growing ITVX, as well as its ITV Studios operation. By 2026, the business has its sights set on achieving at least £750m of digital revenues. Should it meet these expectations in the years to come, this could be key to pushing the stock higher.

Investing always comes with risks. For ITV, there’s the ongoing threat of wavering advertising sales. Its dividend is covered under 1.4 times by earnings, which could also be seen as an issue.

Nevertheless, the business has reiterated its desire to keep rewarding shareholders. Its recent announcement for a £235m share buyback scheme is proof of this. Therefore, I think its handsome payout looks safe enough.

The ITV share price has been gaining momentum this year. In 2024, it’s up 17.4%. By owning stocks like the mature industry titan, I feel that I’ll be able to generate income that’ll enhance my lifestyle in the years to come.

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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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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