A FTSE 250 share and an ETF I’d buy for a second income

I’m looking for ways to make a healthy passive income and I think this stock and this exchange-traded fund (ETF) could deliver an excellent second income over time.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Investing in UK shares is, in my view, one of the best ways to make a large and reliable second income. I also believe that buying dividend-paying exchange-traded funds (ETFs) can be an effective way to reach the same goal.

Here’s a top FTSE 250 share and a Europe-focused ETF I’d buy for passive income if I had cash to invest today.

NextEnergy Solar Fund

Electricity is one of modern society’s essential commodities. And so investing in one of the London stock market’s energy producers can be a great way to source a dividend income.

Should you invest £1,000 in Atlantic Lithium Limited right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Atlantic Lithium Limited made the list?

See the 6 stocks

NextEnergy Solar Fund (LSE:NESF) is one such company on my watchlist right now. As the name implies, this particular operator focuses its attention on renewable energy.

Today it owns and operates more than 100 solar farms across the UK, Italy, Spain and Portugal. It also has a small handful of energy storage assets up and running and in development.

Owning renewable energy stocks has advantages and disadvantages. In this case, power generation can take a dip when the sun’s rays are less strong, in turn impacting the amount of electricity it can sell to energy providers.

But on balance, I think the benefits of me owning this dividend share may outweigh the risks, and significantly too. Profits here could boom over the next decade as Europe transitions from fossil fuels towards clean energy.

Its broad footprint spanning Northern and Southern Europe also reduces the risk of weather-related disruption on group profits.

Today, NextEnergy provides a 10.9% forward dividend yield. This is one of the biggest on the FTSE 250, and underlines the share’s appeal as a top dividend stock.

iShares MSCI Europe Quality Dividend ESG ETF

Investing in a dividend-paying exchange-traded fund (ETF) can also provide a path to a reliable second income. One I’d happily buy for my own portfolio today is the iShares MSCI Europe Quality Dividend ESG ETF (LSE:EQDS).

Funds like this can offer stable dividends thanks to their diversification across a wide spectrum of shares. Investing across mutiple industries and countries means the ETF can provide a smooth return over time, regardless of any company or sector-specific woes, and even trouble in the wider economy.

This particular iShares product includes industrial giant Schneider Electric, financial services provider Zurich and drinks manufacturer Diageo. In total, it has cash spread across 70 different businesses.

During the past five years, the fund has delivered an average annual return of 9.1%. This is far above the 5.8% return that iShares’ FTSE 100-backed fund has delivered over the same timeframe.

The ETF’s focus on Europe means it has less geographical diversification compared to a more global fund. If the region’s core economies (like Germany) continue struggling, it might deliver sub-par returns compared with the latter.

But on balance, I think it’s still a good way for me to try and source a dependable passive income. And today its forward dividend yield is a healthy 4%.

Should you buy Atlantic Lithium Limited now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Royston Wild has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. 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

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »