At the end of the year, I always try and do a mini personal financial statement to see how my cash flow has been for that year. I’m sure other investors do something similar! For excess funds leftover in savings, investors can look to put it to work before we hit 2025 via making a second income from dividend shares. Here’s an idea to consider for a lump sum, like £3k in savings.
Investing over time
Some people think that the best way to invest savings in the stock market is by putting a lump sum to work. In fact, I disagree with this approach. I understand why some think that investing the whole £3k in one go makes sense, as the money can be put to work straight away.
However, a different option to consider is splitting the £3k into six chunks of £500 and investing this amount each month. When it comes to dividend shares, this can offer an investor the ability to take advantage of opportunities as they are presented.
For example, a stock at the moment might have a dividend yield of 5%. Yet in a month’s time, a drop in the share price might have pushed the yield up to 6%. At that point, it could be a great share to snap up. Another case could be a company that’s paying out a dividend of 10p per share. Yet in the annual results released a few months down the line, strong profits could mean management declare a 15p dividend. That might be the catalyst for making it a perfect stock to buy at that point in the future.
Increasing dividend payments
One example of this is TBC Bank (LSE:TBCG). If we rewind to summer 2022, the dividend yield was around 2.5%. At that point, it wasn’t that appealing for income investors. Yet since then, the dividend yield has been increasing, largely due to the rise in dividend per share payments. The current yield is 6.59%.
Over the past year, the stock has risen by 11%. The bank operates in Georgia and Uzbekistan, with great progress made recently in terms of rolling out digital banking. The Q3 results showed that it has an extra 1.4m monthly active digital users versus the same period last year. The more engaged the clients are, the easier it is to spend and make payments, generating higher revenue for the bank.
Another factor that is helping the bank is the economic performance of the developing countries. For example, Georgian GDP expanded 11.1% year on year in the quarter! The strong growth is certainly helping to provide a tailwind for the banking sector.
As a risk, the fraud and money laundering concerns in emerging nations is higher. TBC will likely need to invest more in compliance and other areas to ensure that scandals don’t crop up as it continues to grow.
Diversifying risk
If an investor parked £500 in TBC Bank and built up half a dozen similar investments yielding in excess of 6.5%, I think this would be a strong second income source. Dividends aren’t guaranteed in the future, but spreading the risk around different companies helps to lower the potential impact of a dividend cut on a portfolio.
