It’s an unavoidable fact: earning a second income requires a certain amount of time and money. Usually, having more of one means less of the other, and vice versa.
Working a second job is a time-heavy but cash-free way of generating extra earnings. Investing in dividend shares flips that equation – it requires little spare time but a steady flow of cash.
Yet time still plays a huge role. The more invested upfront, the less time it takes before meaningful returns begin to flow in.
The real question is, what’s the optimal balance?
A path to financial freedom
The first step is deciding how much to contribute each month. Some people are naturally frugal, while others struggle to save. But I believe everybody should be able to put aside around 10% of monthly earnings. I think this should be considered the bare minimum for serious investors.
With the average UK monthly salary of £3,000, that would mean contributing £300 each month to investing. Sinking that into a dividend-rich portfolio with market average growth and a yield of 7%, the pot could reach roughly £58,000 in a decade (with dividends reinvested). At that stage, the portfolio would be paying out more in dividends than the monthly contributions.
But don’t stop there – at break-even, things are just warming up. Another decade and we could be looking at £1,000 a month in dividends – more than enough to supplement a State Pension.
A higher earner might manage £500 a month, building closer to £100,000 over 10 years and generating around £580 a month in dividends. That’s the equivalent of a part-time job without clocking on a single shift.
Another decade and it would have compounded to over £330,000, paying almost £2,000 in dividends. Now that’s enough for a comfortable retirement!
Picking the best dividend stocks
Some attractive high-yielding UK stocks include Assura (LSE: AGR), OSB Group, Land Securities Group and Supermarket Income REIT. All currently offer yields of around 7%, backed by solid dividend coverage and long records of consistent payments.
I’m particularly keen on real estate investment trusts (REITs) such as Assura. Due to favourable regulations, REITs must distribute 90% of profits to shareholders. That makes their dividends more reliable than most. The drawback, of course, is that it leaves less room for reinvestment and growth.
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Even so, Assura’s a standout. The business delivers high margins and a return on equity of 10.66%. And despite the share price climbing 23% so far this year, it still looks undervalued. Trading at just 47.4p per share, the stock changes hands at only eight times earnings – less than half the UK market average.
So what’s the catch?
The obvious risk is exposure to the UK property market, which hurt the stock in recent years. If commercial real estate weakens again, rental income could fall, threatening the dividends that investors rely on. Slow growth’s another consideration – REITs rarely deliver blockbuster capital gains.
Still, for those seeking a reliable second income without sacrificing too much time, I think dividend stocks like Assura are worth considering. Sure, it’s no Rolls-Royce, but remember, slow and steady wins the race.
