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Want a second income? Here’s what I’d do

Do you want to build a second income stream and earn money while you sleep? Of course you do. That’s why I’m going to explain how I plan to create a second income stream using high-dividend stocks and low-cost tracker funds.

The power dividends

There are many different strategies you can use to create a second income. Everything from operating an online store to writing a book and buy-to-let investing. All of these have their benefits and drawbacks, but I believe the best way is to buy shares in blue-chip stocks.

By investing in businesses that are already established and have a leading position in their respective markets, you don’t have to do any extra work. You can just sit back and let the money roll in. What’s more, by investing in a basket of blue-chip stocks, you can build a well-diversified portfolio pretty quickly. And you don’t have to worry about things such as whether or not your business will be able to survive in the event of a no-deal Brexit.

Start investing

You only need a few hundred pounds to start investing, which means you could be generating a second income in just a few days if you already have the money saved. Stocks usually distribute dividends twice a year, one sizeable final dividend payment and an interim distribution, although some companies do pay out quarterly. Some funds pay out a monthly distribution to shareholders as well.

And if you do have that amount to start investing today, I highly recommend buying the FTSE 100 index as a starting point as I firmly believe that this is one of the best dividend investments in the world.

With a dividend yield of 4.3% at the time of writing, the index will give you an instantly diversified dividend portfolio at the click of a button. If you are willing to do a bit more research, there are companies in the index that currently support dividend yields of 6% or more.

Dividend champion

Take FTSE 100 dividend stalwart British American Tobacco for example. At the time of writing, this dividend champion supports a dividend yield of 7%, implying that if you buy the stock today, for every £100 invested, you could see £7 a year of income.

If that’s not enough for you, Persimmon, another FTSE 100 dividend champion, currently supports a dividend yield of 10.5%, implying that for every £1,000 invested in this home builder, you could see £105 a year in extra income.

These are just two examples, but I think they clearly show how easy it is to build a second income stream with dividend stocks.

So, what are you waiting for? If you have a few hundred pounds saved and want to build yourself a second income stream, it makes a lot of sense to go out into the market and buy a portfolio of high-yield, blue-chip income stocks.

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Rupert Hargreaves owns shares in British American Tobacco. 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.