Beginning an investing career from a standing start is never easy. Yet for many, that’s the way it has to kick off. And investors are waking up to the fact that it’s possible to make a second income from dividend stocks even when they have no savings. If I was starting from £0, here’s how I’d go about trying to turn that into a generous annual stream.
The real deal
One stock I’d look to include in my portfolio would be Real Estate Credit Investments (LSE:RECI). The stock is down 13% over the past year, with a current dividend yield of 10.39%.
The business invests in real estate debt secured by commercial or residential properties in the UK and Europe. Therefore, it differs from a real-estate investment trust (REIT) in that it doesn’t own the properties, but rather helps to fund purchases of them.
The dividend yield is very high, with regular quarterly income payments. Of course, with a yield this high, there must be risk involved. This is the case, investing in debt in the property market right now can be difficult! Property developers are struggling under the burden of high interest rates. Some are going bust because they can’t afford the repayments. If enough go bust that are within the fund, it could really hamper performance.
Based on the track record, I think the management team that runs the fund can navigate these murky waters. If interest rates fall, this will certainly help the share price to recover as sentiment improves.
Banking on success
Another example I’d buy if I was starting out would be TBC Bank (LSE:TBCG). I recently wrote about the stock from the angle of capital gains, but it equally applies when thinking about income potential.
The stock has rallied by 38% over the past year but also boasts a dividend yield of 6.8%. Better financial results not only help to increase the share price but also provide more earnings that can be paid out as dividends.
The Georgian bank has benefitted from higher interest rates, enabling it to record a larger net interest margin. Further, the Georgian economy grew by 6.8% in 2023. So there was a greater level of general spending and lending activity for the bank to get involved in.
One concern is that the stock now trades at £31. This is high for a FTSE 250 firm and can make it unattractive for potential investors. If I was only looking to allocate a small amount of money, I wouldn’t get many shares of the company.
Checking the numbers
The average dividend yield of both stocks combined is 8.6%. I’d want to include other stocks in my portfolio to reduce the risk from just these two ideas. But let’s assume I could build a portfolio with this same yield.
If I invested £300 a month, after 15 years I’d have an investment pot that could be worth just over £110k. In the following year, this could pay me out £9.5k in passive income.
Of course, I’d need to reinvest my dividends along the way to help compound growth. There’s the risk that my pot might grow at a slower rate, taking longer to reach my goal. Yet it highlights how this strategy can be very profitable.
