I believe investing in UK shares is the best way to make a second income. As we’ve seen, a diversified portfolio of stable, financially-robust FTSE 100 and FTSE 250 stocks can create a lifetime of abundant passive income.
At the moment, I’m looking for dividend stocks to help me grow my Stocks and Shares ISA. The dividends I receive are reinvested in more shares, which pay me even more dividends for me to invest again. And so the cycle goes on which, over time, allows me to significantly expand the size of my portfolio.
Once I’m retired, I’ll be seeking a passive income to help me fund my everyday expenses and pay for some (hopefully regular!) luxury treats. Given rising uncertainty over the State Pension, targeting a second income from dividend stocks seems like a clever move.
Next step
The London stock market is packed with companies that have long and distinguished dividend records. Some offer huge dividend yields for this year and beyond too. So which ones should I choose?
Here’s one on my watchlist today.
Going green
Investing in renewable energy stocks could be an effective way to build long-term income. Demand for green power is rocketing as steps to tackle the climate emergency intensify.
Renewables generated a record 30% of the world’s electricity last year, according to energy think tank Ember. Growth from solar sources was especially high. These accounted for more than twice as much new electricity as coal in 2023.
Foresight Solar Fund Limited (LSE:FSFL) is one UK share I’d buy to capitalise on this trend. This green energy giant’s the largest dedicated solar energy investment company by installed capacity on the London stock market, with solar assets spanning Britain, Spain and Australia.
The fund’s share price has fallen sharply since late 2022, reflecting Bank of England interest rate hikes. But it’s back in recovery mode as inflation recedes and rate cut speculation grows.
9.4% dividend yield
Foresight has raised the annual dividend more than 33% since its IPO a decade ago. And it’s announced plans to raise it again in 2024, to 8p per share from 7.55p last time out.
City analysts expect the business to make good on this promise. But this isn’t all, as they expect dividends to keep growing over the forecast period to 2026, as shown below:
| Year | Dividend per share | Dividend yield |
|---|---|---|
| 2024 | 8p | 8.9% |
| 2025 | 8.2p | 9.1% |
| 2026 | 8.41p | 9.4% |
This means that short-term dividend yields rise above 9%.
Investing in renewable energy stocks has another big advantage for investors. Electricity demand remains stable at all points of the economic cycle. So just like fossil fuel specialists, earnings don’t tend to suffer during downturns.
This in turn gives the likes of Foresight added strength to pay robust dividends year in, year out. The fund’s long record of dividend growth is perfect proof of this.
Keeping solar panels up and running is expensive. And the danger of large and unexpected costs is rising as severe weather events become more frequent.
But this doesn’t put me off. I expect Foresight to still continue paying a large and growing dividend long into the future.
