If we’re new to investing, it can be hard to know where to start. So, here are five of my favourite second income ideas.
Nordic American Tankers: 11.9% yield
Nordic American Tankers (NYSE:NAT) offers a market-topping 11.9% dividend yield. Often big dividends like this are a warning sign, but I don’t believe that’s the case here. Its dividend coverage ratio of 1.26 times could be stronger. There isn’t much margin for error, but it’s operating in a booming sector.
The tanker industry is going through something of a supercycle due to supply and demand imbalances. Day rates for the type of tankers Nordic operates — Suezmax — have more than doubled over two years. What’s more, Houthi attacks near the Red Sea and low water levels on the Panama Canal have exacerbated vessel shortages (due to rerouting).
While a calming geopolitical environment may have a negative impact on day rates, the company’s own forecasts seem very conservative. Management suggested day rates could fall in Q1 and Q2. That hasn’t happened.
Phoenix Group: 10.8% yield
Phoenix Group is a FTSE 100 stalwart. It’s an insurer operating in a fairly mature part of the market. It doesn’t offer much in the way of growth, but it does have a 10.8% dividend yield and a coverage ratio of 1.6 times.
Inflation remains a challenge for insurers, and this is one reason insurance stocks have suffered over the past five years. However, it’s still a fairly safe industry, with positive influences in the form of bulk purchase annuities (BPA).
Legal & General: 8.6% yield
Legal & General is the leading player in the UK’s BPA market, and more than £50bn worth of bulk annuity business is estimated to have been written in 2023. It’s a big plus for this often slow-moving sector.
As noted above, inflation remains a challenge for insurers. However, we all need insurance. It’s an industry that isn’t going anywhere. These are stocks I buy and almost forget about — like bonds.
British American Tobacco: 9.7% yield
British American Tobacco is an amazing investment opportunity, but not for me. I’ll invest in mining, oil and gas, defence, but not tobacco. That’s personal. But, of course, there’s a risk that tobacco companies either have to evolve or risk becoming obsolete.
British American is trying to move smokers onto smokeless products. This is probably good for smokers, and probably good for the company. It may be more palatable in the future. Nonetheless, it currently offers a huge dividend yield of 9.7% for those who are happy to invest in the sector.
TBC Group: 7.5% yield
I’m long on Georgian banks, but I’m cautious about buying until after the election. Georgia is a politically polarised country and it’s election year. What’s more a foreign agents bill has engendered widespread protests and clashes with police.
As such, the TBC Group share price is giving up some of its gains. Up 255% over three years, but down 6% today, at the time of writing (2 May). I’d be wary that the stock could lose more value before stabilising.
However, it’s an excellent business, and if the share price falls, the dividend yield will rise. It’s a stock I’m keeping an eye on and I’m bullish over the long run.
