The stock market is a fantastic way to start earning a second income. And while buying shares does require a bit of cash, often being a bit more frugal and putting aside some money each month is enough to get the ball rolling. That’s especially true for those who take it to the extreme and amass a small fortune in the bank.
The latest Department for Work and Pensions Family Resources Survey shows that around 3% of British households have between £200,000 and £500,000 of savings.
While that’s obviously a small portion of the UK’s population, it’s still hundreds of thousands of people who could instantly unlock a £17,200 passive income overnight. Here’s how.
Income from index funds
The fastest and arguably easiest way to deploy a six-figure lump sum is to simply invest in a low-cost index fund. After all, these allow investors to instantly become diversified and replicate the performance of the stock market.
However, looking at the FTSE 100’s, 2.9% dividend yield today, even with £200,000, the total passive income that could be earned right now is only £5,800.
While that’s certainly nothing to scoff at, it’s nonetheless lower than what most high-interest savings accounts offer right now. And even NS&I Guaranteed Growth Bonds are being more generous at 4.07% for a much lower level of risk.
Luckily, by adopting a stock-picking strategy, investors can still do considerably better.
Investing in high-yielding dividend stocks
Rather than relying on an index fund, investors can choose to invest in specific businesses directly. While this does require far more effort and involves taking on additional risk, it also opens the door to potentially lucrative income opportunities.
Take Victrex (LSE:VCT) as a prime example to consider.
Right now, the shares of the speciality polymers business offer a pretty chunky yield of 8.6%. That means, assuming payouts are indeed maintained, a £200,000 investment today could immediately generate a tasty £17,200 second income.
So, job done? Not quite.
Where’s the risk?
While Victrex has maintained its dividend payout in December 2025, it’s actually significantly ahead of the group’s profits. For reference, the total dividends in 2025 added up to 59.56p, but earnings per share only reached 32p. In other words, the company paid out more to shareholders than it actually made as a business.
Obviously, that’s not sustainable. And it’s why the yield is so high – the market is pricing in the risk of a dividend cut.
Looking ahead to 2026, Victrex does have some tailwinds to capitalise on. After a prolonged cyclical downturn, the last few quarters have seen a notable step up in polymer volumes from multiple sectors – an early indicator of a cyclical recovery.
At the same time, it has begun executing a self-help cost savings scheme to bolster profit margins as revenues begin to climb again. Management is confident that earnings will recover in the near future, and that’s why dividends have been maintained.
But if this recovery fails to materialise, or performance falls short of expectations, investors could be left severely disappointed. And given the group’s recent lacklustre track record, caution does seem justified.
The point is, an 8.6% dividend yield is almost never risk-free. And looking at Victrex, affluent investors seeking a second income need to carefully weigh risk versus the potential reward.
