Wouldn’t it be nice to get a second income without the extra work? Usual sources of extra cash like a buy-to-rent or a part-time job demand mucho stress and even more responsibilities. Perhaps this is why more and more folks are looking at ways to earn money without the hassle.
While there’s no such thing as a free lunch, the stock market has provided countless opportunities over the years to build such income streams. Some of these stocks can earn growing income for years and decades without the investor having to lift a finger.
One method
One popular method of investing like this is dividend stocks. That’s because a large chunk of cash is paid out as dividends one to four times a year (although dividends are never guaranteed). This creates an income stream from day one – without having to fiddle around selling stock.
Take National Grid (LSE: NG.), for instance. The nation’s provider of electricity draws stable income from its operations. Its role as a (legal) ‘monopoly’ in the UK means income could be reliable for many decades to come.
The dividend forecast for the year ahead is 3.99%. While no dividend is ever guaranteed, this likely provides a passive income that starts within the year. And although the yield might not seem that high to begin with, the company aims to increase dividends over time and this is where the big winners can be found.
Not every dividend stock is a slam dunk, however. Investors will need to weigh up the risks to to discover whether a company could end up being a turkey. In National Grid’s case, the high debt levels combined with the need for large infrastructure spending in the green energy revolution does pose a risk to the strength of the dividend long term.
Drip-feeding
While a lump sum can snowball into a truly impressive income stream over time, the golden ticket is to throw in a little drip feeding too. By adding small, regular amounts from the day job, the second income can be achieved orders of multitude more quickly.
Another advantage to drip-feeding is that it takes advantage of dips in the market. Someone putting cash in on a monthly basis gets a big boost when the share prices dip temporarily – like the brief ‘Trump Tariffs’ crash last spring.
A Natwest study found the average saving rate for Brits – across all incomes and ages – is £226 each month. What happens if we add that in to high-quality dividend stocks such as National Grid?
The exact calculation depends a lot on share price moves and time invested. On average UK stock market returns (around 9%), an investor might expect a second income of £7,326 after 10 years and £21,053 after 20.
