£9k of savings? Here’s how an investor could aim to turn it into a second income of £560 a month

Christopher Ruane digs into the theory and numbers of how an investor could target a chunky monthly second income of by investing in blue-chip shares.

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Savings can be put to work in the stock market to earn a second income, in the form of dividends paid by some shares. That can be lucrative and lets investors benefit from the success of proven blue-chip companies without having to do any of the hard work themselves.

Here is how an investor could target an average monthly income of £560 by investing £9k, while sticking to large, proven UK companies.

Getting started

The first thing an investor might consider is the practical question of how to put the money to work. To that end, I think it makes sense to survey the wide array of share-dealing accounts and Stocks and Shares ISAs available.

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Each investor has their own objectives and financial situation, so I think it can be helpful to take time and find what seems like the best match.

Building an income machine

With that done, it is then possible to start buying shares. I use the plural on purpose. Even the most promising share can disappoint.

Dividends are never guaranteed to last and there is also the risk of a share price going down. So diversifying across a varied range of shares is a simple but smart risk-management strategy.

Imagine that such a diversified portfolio of blue-chip FTSE 100 shares generates an average dividend yield of 7% (something I discuss in more detail below).

Seven percent of £9k is £630 a year. So what about the target of £560? By taking a long-term approach to investing and reinvesting (compounding) the dividends then after 35 years, a 7%-yielding share portfolio ought to be generating £560 a month in dividends.

If 35 years sounds like too long to wait, the same approach could also work on a shorter timeframe. In that case, the monthly second income would be less.

On the hunt for dividend shares to buy

That 7% may not sound a big number, but most FTSE 100 shares do not offer as high a yield as that. In fact, it is close to double the current average.

But some blue-chip shares do offer such a yield, or even more right now. As an example, one income share I think investors should consider Is insurer Aviva (LSE: AV).

The FTSE 100 share yields 7.3%. It has also been growing its dividend per share handily in recent years, though that comes after a big cut in 2020 (a reminder that no dividend is ever guaranteed to last).

It has a strong position in the UK insurance market. And if its takeover of rival Direct Line is successful, that could become even stronger. Economies of scale could also help the combined company’s profit margin.

Created with Highcharts 11.4.3Aviva Plc PriceZoom1M3M6MYTD1Y5Y10YALL6 Apr 20203 Apr 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '252021202120222022202320232024202420252025200300400500600www.fool.co.uk

Insurance is a large market with strong ongoing demand. I see Aviva as well-positioned to capitalise on that, thanks to strong brands, a large existing customer base (many of whom buy multiple products from the firm) and vast experience in underwriting.

Will the dividend last, let alone keep growing? As Direct Line itself proves, insurers can suffer badly if they misprice risks. Given its strong market position, that is definitely a risk I see for Aviva.

On balance though, I see the 7.3%-yielder as a share investors should consider.

Should you invest £1,000 in Phoenix Group Holdings Plc 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 Phoenix Group Holdings Plc made the list?

See the 6 stocks

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.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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