Second income for £10 a day? Here’s how

By putting aside a tenner each day, this writer reckons he could set up growing second income streams thanks to dividends from well-known companies.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

British bank notes and coins

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Is it possible to earn a second income without taking another job? The answer is yes – and lots of people already do it.

One way is by investing in the stock market.

Something I like about that approach is that it does not require lots of time like an extra job – but it also does not necessarily require a lot of money. If I had a spare tenner a day to put to work, I think I could use it to start building a second income.

Here’s how.

Dividend shares

Some companies make a loss, while others earn money but decide to reinvest it all in the business.

Another kind of business, though, earns profits and distributes some or even all of them to its shareholders in the form of a dividend.

Dozens of well-known FTSE 100 businesses from Shell to AstraZeneca do this. If I owned shares in those companies, I would earn dividends if they paid them. Such dividends form the basis of my second income plan.

Choose carefully

However, even among companies that do pay dividends, there are no guarantees that they will continue.

The financial impact of such dividends for me as a shareholder can also vary substantially.

AstraZeneca, for example, has a dividend yield of 2.1%. This means that, for every £100 I invest now, I would hopefully earn £2.10 in annual dividends. By contrast, the 10.7% yield of Vodafone is over five times as lucrative.

In constructing a second income portfolio, though, I would not just look at yield. After all, as dividends are never guaranteed, neither is yield.

Instead, I would hunt for shares in businesses I think have excellent long-term commercial prospects and an attractive share price. I would then consider their yield.

Portfolio building

I could make a mistake, of course. Or I could just be unlucky and choose a business that gets blindsided by some unforeseen event.

So, in building my second income portfolio, I would diversify across a range of shares and industries. I would stick to businesses with proven models I think I can understand and assess. Putting money into something one does not understand is not investment, after all, but merely speculation.

Dividend income

Putting aside £10 a day would give me £3,650 to invest each year.

That is a substantial amount. I would set up a share-dealing account or Stocks and Shares ISA to put the money into and then invest it.

I would research shares that matched my criteria and could soon start building my portfolio.

If I was able to earn an average 5% yield, for example (less than half of the current Vodafone yield), my first year’s investments would hopefully earn me a second income of just over £180 per year.

Then, if I kept saving year after year to invest, I could add more shares to my portfolio. Hopefully, that way, I would see my second income streams grow.

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 positions in Vodafone Group Public. The Motley Fool UK has recommended Vodafone Group Public. 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.

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »