£10k in an ISA? I’d use it to aim for an annual £1k second income

Want a second income without having to take on a second job? With a bit of money up front, and a bit of time, it can be done.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A second income can really help with rising bills these days. And there’s a way to aim for it, without taking on a second job.

But it needs a bit of money to set up and, ideally, a few years to get going. I’m talking about buying shares in UK companies that pay good dividends.


If I had a £10k windfall, I could invest it all in Phoenix Group Holdings (LSE: PHNX) shares. Phoenix is an insurance and investment firm specialising in managing closed life and pension funds.

It’s on a forecast 10.8% dividend for this year. So I could plonk down my £10k, then sit back and pocket £1,080 a year in dividend cash. Easy, right?

But you might be thinking, wouldn’t it be nuts putting our money all in this one stock, and just assuming all will be fine and we’ll get our dividends?

Well, yes, it probably would.

Risky business

Dividends aren’t guaranteed. And this year’s 10% might not happen. The insurance and investment business is also risky. And it can go through bad times, just like after the 2020 stock market crash.

So there’s no dividend guarantee. And I’d rate Phoenix Group as a riskier investment than a lot of others on the FTSE 100.

So what can we do? For one, I focus away from the biggest dividends as they can be the least certain. As an example, Vodafone has been paying more than 10%. But that will be slashed in 2025, as the company tries to turn itself round.

Show me the cash

The key thing for me is to find companies with sustainable dividends, in strong cash-cow businesses, and with long track records of raising their annual payments.

Take National Grid. It’s lifted its dividends for more than 25 years, and it sure looks like a long-term essential business to me. It’s a regulated industry though, and it faces changing demand and energy sources, so it still has risk.

But I’d rate National Grid’s forecast 5.4% yield as less risky than the 10.8% at Phoenix. Of course, it wouldn’t get me my £1k a year from a single £10k investment. More like £540.


But here’s a thought. What if I split the money between the two? I could get an overall yield of 8.1%, with the risk somewhere in the middle. And I’d have a bit of safety in case one of them hits a rough patch.

And I’d just extend that. Maybe put £2k into each of five stocks, in different sectors. Or £1k in each of 10.

I wouldn’t get as big a yield as picking the single top one. So I’d have to settle for less than that £1k a year. Or, better still, keep investing my dividends in more stocks, add as much extra as I can each year, and keep going for as long as I can.

More than £1k?

I reckon I could get to a second income of a fair bit more than £1k a year that way… with a bit of patience.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »