Dividends are never guaranteed, so it pays to manage risks by diversifying the portfolio properly and carefully assessing shares before purchasing them. Still, this could be a simple and fairly lucrative scheme, depending on how much someone invests.

Cutting your coat according to your fabric

How big the second income might be depends on a few factors. In short, those are the size of investment, what the average dividend yield is, and how long someone waits.

Let’s examine each in turn.

Size of investment: suit yourself

Investing in the stock market is a flexible activity that can be tailored to an individual’s circumstances.

That might involve a lump sum, for example, or it could be regular investing. It might even be irregular investing, drip feeding spare money in as and when you have some.

Dividend yield: a helpful financial measure to understand

The second factor that determines the income is dividend yield. Basically that is the annual dividends earned, expressed as a percentage of the cost of the shares. For example, a 5% yield means for each £100 invested, the annual dividends will hopefully be £5.

Stockbroking costs can eat into the second income, so it pays to weigh different options when choosing a share-dealing account, Stocks and Shares ISA or trading app.

Time: the friend of the savvy investor

The third factor is time. For example, let’s stick with the 5% yield. That is well above the current FTSE 100 yield of 3.1%. Nonetheless, I think it is possible while sticking to blue-chip companies.

With a monthly second income target of £500 (£6k a year), a 5%-yielding portfolio would need to be worth £120k to hit the goal.

An alternative approach is initially reinvesting dividends before drawing the income. This is known as compounding. From nothing, someone investing £1k a month and compounding it at 5%, the portfolio would grow to £120k in under nine years.

Choosing income shares with long-term potential

When I look for a share (because I want to build income streams), I do not just look at its current yield. That is a snapshot of current performance and changing business performance could mean future dividends (if any) are different. So I look at how strong the business seems and what its future prospects may be.

For example, one dividend share I think investors should consider is City of London Investment Trust (LSE: CTY). By investing in a carefully selected group of leading British shares, the trust has been able to grow its dividend annually since the 1960s.

Over the past five years, there has also been good news in terms of share price performance. The 45% gain is below the 53% achieved by the FTSE 100 during that period. But I still see it as a strong result.

Sticking mostly to British blue-chips, the trust exposes itself to the risk that a weaker UK economy could hurt its performance. But it is also exposed to a well-established market where some companies sell at attractive valuations.

That could help provide long-term capital growth, as well as the prospect of juicy dividends.

The post Want to aim for a £500 second income each month? Here’s how much it takes appeared first on The Motley Fool UK.

But all this Stocks and Shares ISA stuff is complicated, right? And who has 20 grand to stash away? Well, it’s actually quite straightforward. Here are three key steps.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Step 1: pay in some cash

Opening an ISA online is fairly easy these days. Just head over to your online ISA provider of choice — and all the ones I’ve looked at have clear instructions to follow. They accept one-off transfers, or monthly direct debits from as little as around £25.

And we really don’t need a lot to get started. Maybe just £25 each month, and top up whenever we have spare cash. Even that could build to a significant pot over the long term.

There’s no need to buy shares by any deadline. So we can leave the cash there as long as we like, until we know what we want to buy. The time limit for the £20,000 applies only to money paid in, not actually invested in shares.

Step 2: decide on a strategy

What about an investment strategy? Tech growth shares have been making great strides. But falls in the past few months have highligted the potential danger too. AI chip leader Nvidia, for example, has dipped 19% since October.

The FTSE 100 has some tempting dividend shares. Legal & General tops the list with a forecast 8.6% yield — although that’s not guaranteed, so there’s different risk there. Reinvesting dividends in more shares could build up to a decent passive income pot over the years.

Daily at The Motley Fool, we publish a number of free-to-read articles. Each covers at least one stock to consider. Investors could do worse than reading them to get a feel for which kind of companies they might like.

Just remember one vital part of any strategy. Diversification across different companies and different sectors is essential. Spread out, the chances are that fewer eggs will be broken if the market drops a basket.

Step 3: buy something!

Buying our first share can be an exciting moment. And there’s a class of stock that I think can help with our strategy. They’re investment trusts like The City of London Investment Trust (LSE: CTY). This one holds a range UK stocks, aiming for long-term income and capital growth.

It picks a range of different companies, which we can them explore to help decide on a longer-term strategy. And it provides much-needed diversification in one go. Its top 10 include HSBC Holdings, Shell, BAE Systems… and a variety of others.

The trust has raised its annual dividend (currently at an estimated 3.9%) for 59 years in a row. That does highlight a risk, as I’d expect the share price to fall should the dividend fail to grow one year. And even a diversified investment like this can’t avoid a general stock market slump.

But I think this — or a similar investment trust — is one every new ISA investor aiming for passive income should consider when starting out.

The post 3 steps to aim for a lifetime of passive income from a new ISA appeared first on The Motley Fool UK.

On paper, targeting £2,400 a year in income from that amount implies a 12% yield.

The problem is that a 12% sustainable income return is extremely rare in today’s market. Where it does exist, it usually comes with significantly higher risk than most long-term investors would accept.

So while the £2,400 figure can be a useful goal, it is not something that can realistically be generated from £20,000 in a single year. Not without taking on considerable risk.

A more practical approach is to treat it as a compounding target. One built over time through reinvested dividends, capital growth, and gradual portfolio expansion.

In that context, the question isn’t whether £20,000 can generate £2,400 immediately, but how it can be structured so that income steadily grows towards that level in a sustainable way.

With that in mind, here’s how a £20,000 ISA portfolio could be structured to focus on building sustainable long-term income.

Core holding

One of the longest-held positions in my ISA portfolio is insurance group Aviva (LSE: AV.). The recent market sell-off has pushed its dividend yield up to around 6.6%, but that isn’t the main reason I hold it.

As the UK’s largest general insurer and a growing wealth business, Aviva generates relatively stable cash flows from premiums and long-term savings products, which supports its ability to return capital to shareholders.

The attraction here isn’t just income, but the durability of the business model. Insurance companies don’t rely on rapid growth. Instead, they depend on disciplined underwriting, cost control, and consistent capital generation over time.

The key risk remains exposure to economic cycles and investment market volatility, which can affect returns. However, over the long term, it is precisely those investment returns that underpin both dividend growth and shareholder payouts.

Dividend workhorse

To complement individual equities, I also own a number of investment trusts, including The City of London Investment Trust (LSE: CTY), one of the UK’s longest-running dividend-focused investment trusts.

Its strategy is straightforward: invest in a diversified portfolio of established UK companies and prioritise consistent, growing income over time. That includes major dividend payers such as HSBC, Shell, Tesco, and Legal & General, alongside financials like Lloyds and NatWest.

What makes it attractive is its track record of increasing dividends through multiple market cycles, which helps smooth income generation inside an ISA.

The trade-off is that it remains exposed to the UK market and broader economic conditions, meaning capital values can fluctuate even if income stays relatively resilient.

Building a second income over time

Together, these two holdings show how I’d approach building a second income within a Stocks and Shares ISA. Aviva provides a core source of relatively stable cash generation, while the City of London Investment Trust adds diversification and a long track record of growing dividends.

Importantly, this isn’t about generating £2,400 overnight. It’s about building a portfolio that can steadily increase its income over time through reinvestment and disciplined stock selection.

In that sense, the ISA becomes less about chasing yield and more about creating a resilient income stream that can grow year after year.

The post Turning a £20k ISA into a £2,400-a-year second income appeared first on The Motley Fool UK.

So, say someone had a bit under £400 and wanted to start investing before April. That basically means over the next couple of days!

Could they do it – and how?

Investing on a tight budget

£380 is certainly enough to begin buying shares.

In fact, I think it can be better to start investing on a small scale than waiting for a long time to save up lots of money to do it.

But one thing to watch out for is the impact of dealing fees and costs. Sometimes they have a minimum amount. When investing a modest amount, that can have a disproportionate effect.

So it pays to shop around when looking for a share-dealing account or trading app.

A Stocks and Shares ISA needn’t take £20,000

Or, come to that, a Stocks and Shares ISA.

A lot of discussion about them focuses on the idea of investing £20k, because that is the standard annual contribution allowance.

But that does not mean an ISA might not also be useful for someone who wants to start investing with a few hundred pounds.

With this year’s allowance deadline fast approaching – it falls a week today, on 5 April – now could be the perfect time to think about that.

Learning about the market and setting an approach

A new investor should also get their head around some basic but important stock market concepts, like how to diversify a portfolio and why valuation matters when considering shares.

I think one mistake some people make when they start investing is not having a plan. The plan can change over time, but I think it is important at least to have one as a starting point.

For example, is the objective capital growth, dividend income, or both? What risk tolerance is the investor happy with? How will they decide not just when to buy a share but also when to sell it?

One share to consider

As a new investor, It can be difficult to stay grounded when setting expectations. But I think it is helpful to be modest and not too ambitious, hoping for a decent return over the long term rather than a quick, spectacular return.

No share is guaranteed to perform, of course. But one of the reasons I think City of London Investment Trust (LSE: CTY) merits consideration by investors is the fact that the pooled investment vehicle aims to own a carefully selected portfolio of blue-chip British shares.

That means that, over time, it ought to perform broadly in line with the UK economy. Of course, that also brings the risk that when the British economy performs weakly or UK stock market tumbles, the share could lose value.

Another thing I like about City of London is its commitment to dividends.

Again, no company’s dividend is ever guaranteed to last. But the shareholder payout is clearly a priority for the investment trust’s directors. Indeed, the dividend per share has grown each year since the mid-1960s.

The post With a spare £380, here’s how someone could start investing before April! appeared first on The Motley Fool UK.

Should I dump everything and sit on cash for a few months? Nope, not a chance. And I’ll tell you something else I’m not going to do — panic! We need to keep things in perspective.

Despite what’s already happened over Iran, the FTSE 100 has only fallen around 4.5% since its recent peak. And ‘Footsie only down a little bit from all-time high’ really isn’t the kind of headline to strike fear in investors’ hearts, is it?

I mean, a crash is technically a 20% fall. And we’re not remotely close to that. In fact, I’d say the modest decline underscores the resilience of the UK stock market.

US optimism

What about over in the US? Well, Goldman Sachs has just predicted corporate earnings could push the S&P 500 to around 7,600 by the end of 2026. They didn’t mention the war.

I think a stock market crash any time soon is unlikely.

Now, I’ve been wrong about the stock market before, and I’ll be wrong again for sure. But most people tend to be wrong about half the time — that’s how guesswork goes. And when everyone is scared of a crash… that’s when they tend not to happen.

I reckon another stock market crash before I retire is likely. I just have no idea when. So even if I might not expect my stocks to fall next week, how am I prepared for whenever the next slump might be?

Diversify

I have City of London Investment Trust (LSE: CTY) as a cornerstone of my Stocks and Shares ISA. And that helps in several ways. It gives me some welcome diversification from just a single purchase. It holds Unilever, BAE Systems, AstraZeneca, Tesco… and a whole lot more.

I also rate a good few of its holdings as defensive, with decent safety and not expected to be too volatile.

The dividend helps too, with a 3.8% yield expected. That’s not huge. But the investment trust has raised its dividend every year for 59 years. And the way investment trusts are structured, they can do that even in down years.

The biggest risk I see at the moment is the trust’s share price climb — it’s up 37% in just the last two years. I suspect that, in part, is due to investors moving cash to what they see as a relatively safe investment in troubled times. And when bullishness returns to the stock market, maybe it’ll reverse a bit.

Take the cash

But dividends have kept me smiling through previous downturns, and I’m sure they’ll do it again. Who really cares where our share prices go in the short term if they’re generating steady streams of cash for us?

So keep our eyes on the long term, and consider holding a diversified UK investment trust like City of London — that’s my stock market crash strategy.

The post Is it time to dump my shares ahead of an almighty stock market crash? Nah! appeared first on The Motley Fool UK.

Here’s how.

Slow and steady, with some help from HRMC

That sum is based on compounding at 5% annually. That compound growth could come from either dividends or share price growth, or a combination of both.

Now, share price declines could eat into the growth rate. Clearly, it is important to take time when building a diversified portfolio of blue-chip shares.

Still, on a 20-year timeframe – even recognising the likelihood of market downturns during that period – I see that 5% goal as a realistic one.

By the way, like I said, the sum presumes a monthly contribution of £2,464.

But bear in mind that, thanks to tax relief, a basic-rate payer could put around £1,972 per month into their SIPP and the exchequer would automatically top it up to £2,464.

Higher and additional-rate taxpayers are entitled to even more tax relief, albeit the process is more convoluted for them.

But that means that, for them, a much smaller monthly contribution would be transformed into £2,464 thanks to tax relief.

Quality and a long-term perspective

All things considered, I do no think this approach to having a seven-figure SIPP at 60 is complicated.

It requires consistency, a long-term perspective, and building a portfolio of shares that strike the right balance between potential reward and risk. With a 5% compound annual gain target I do not think that needs to be very racy. 

Instead, I think it can allow for a conservative approach to risk management.

1966 and all that

As an example, one share I should consider is City of London Investment Trust (LSE: CTY).

This FTSE 250 investment trust has a history that stretches back to the 1860s. Its current run of annual increases in the dividend per share started in 1966.

It may seem like an eternity since England last won the World Cup – but the trust’s shareholders have been getting a bigger payout per share every year since then!

At the moment, the yield is 3.7%: above the average for the FTSE 100 index, which is home to most of the trust’s holdings, such as HSBC, Shell, and Natwest.

3.7% is still below the 5% target I mentioned above, but recall that includes price moves too.

The City of London Investment Trust share price hit a new all-time high last week. It has gone up 65% over the past five years alone.

That is close to the 68% gain of the FTSE 100 over that period. The trust’s focus on leading British blue-chip shares helps it benefit from well-known UK shares doing well, but at the risk that it will also likely suffer when the FTSE 100 does poorly.

Past performance is not necessarily a guide to what will happen in future. But while City of London Investment Trust might not be the most exciting share on the London market, I expect it will likely be here for a long time yet – and hopefully still raising its dividends like clockwork.

As for when England will likely next win the World Cup, well…

The post How much should a 40-year old put into an empty SIPP to aim for a million by 60? appeared first on The Motley Fool UK.

My hand stayed down for those two. Even if we don’t do the best we can this year, there’s another £20,000 allowance coming soon, right?

But if we don’t make the most of our opportunities today, we could forfeit some serious gains down the line. Let’s look at the difference it might make.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

ISA shortfall

Suppose we can invest the full £20,000 ISA amount every year. And then achieve an average return of 6.9% a year. That’s the average annual return from the FTSE 100 over 20 years, so it seems reasonable.

Do that every year, and it could grow to as much as £841,000 in 20 years. That’s £400,000 in, and £841,000 out at the end — and no tax to pay.

What if we could do that, but don’t get round to it? Maybe £5,000 below the maximum? We could end with a bit less than £631,000. That’s a whopping £210,000 short, through investing a total of £100,000 less.

Life has to be a balance. And I don’t want to live like a pauper to squirrel away every last penny I can. But money not invested in an ISA today could mean more than twice the amount lost from our 20-year gains. Do I want to buy a £10,000 car (or whatever) today and sacrifice £21,000 off my pension fund later? That would make me think differently.

We all have to tailor our investments to our financial means — I don’t have £20,000 each year to invest, for example. But seeing the difference a bit extra can make can inspire us to better results.

A starter stock?

I always think an ISA investor just starting out should consider an investment trust first. City of London Investment Trust (LSE: CTY), for example, has performed quite nicely over the past five years.

But there are two bigger attractions for me. The rise means the dividend yield has fallen a bit, though we’re still looking at an attractive 3.7% forecast. In the recent past it’s been up around 5%, or so. But more importantly, the dividend’s grown for 59 years in a row. A progressive dividend can be more valuable than a less-dependable high yield.

City of London also offers diversification, as shareholders’ money is spread across a wide range of stocks — with the top 10 all big FTSE 100 companies. I rate diversification as the number-one investing priority, especially for those starting out. Being burned at the outset could put us off for life.

Eyes on the future

There are no guarantees. And this trust could take a tumble if that run of dividend rises falters. But a diversified investment of this kind has to improve our long-term passive income odds.

So make the most of our ISA opportunities, diversify, and go for the long term. That’s my strategy.

The post Urgent! there’s not much ISA time left to boost our passive income plans appeared first on The Motley Fool UK.

Could have, should have…

Of course, as a believer in long-term investing myself, I do think it is better when people can start investing at a younger age. But, as with a multitude of other hypotheticals in life, we do not always do the right thing at the right moment.

It can still be well worth investing later on, though.

Say someone tucks away £1k a month and compounds it at 5% annually. After 20 years, it ought to be worth around £406k.

That is true whether that 20-year period starts at 40, 50, or 60. So while an older investor lacks the potentially longer timeframe of someone in their 20s or 30s, they can still build significant wealth by choosing to start investing.

Silver hairs — and silver linings

Plus, I reckon older investors have some potential advantages over younger ones or even their younger selves.

For starters, they may well have more spare cash.

One reason some people do not start investing when they want to is simply that the costs of raising a family eat up every spare penny.

On top of that, all smart investors learn from experience.

That is not just experience in the stock market, but can be life experience more generally. That is something that gets richer with age!

Getting into the game

But while it may make sense for someone to decide to start investing, it can also feel a bit intimidating.

I reckon it need not be. Someone can help themselves by getting to grips with some key ideas about how the market works in practice, such as different ways that shares are valued and how to build a portfolio.

Before you start investing, you also need a method to do so. It can be worth spending some time comparing different options for share-dealing accounts and Stocks and Shares ISAs.

Decade of dividend growth

Another question is what shares to put into that portfolio.

One share I think merits consideration is City of London Investment Trust (LSE: CTY).

Like some people, it has got better with age – and it is certainly old, having been established in 1861.

It has gone up 56% in the past five years (close to the 58% gain in the FTSE 100 index during that time). Plus, it has grown its dividend every year since England last won the World Cup.

Hopefully that dividend streak will continue even if England do it again this summer! At a 3.9% yield, the trust is more lucrative than the FTSE 100 with its current yield of 3.1%.

Dividends are never guaranteed, but one reason City of London has grown its payouts annually for decades – and also why its recent performance is close to that of the flagship blue-chip index – is its focus on blue-chip British companies, with holdings like HSBC and Shell.

That means that it could suffer badly if the UK economy does weakly. But I like the focus on large, successful companies.

The post Think you might be too old to start investing? Think again! appeared first on The Motley Fool UK.

It is a good question. Many people hold off from investing in the stock market because they think they need a certain amount to buy shares.

Pay close attention to costs and charges!

There is some logic to that. For example, Hargreaves Lansdown has a default charge of £11.95 per trade online. That can fall for someone who executes 10 or more trades in a single month, but that seems irrelevant for a long-term investor with only £100 to spare.

By phone or post, that minimum dealing charge goes up to £20. So an investor with £100 could be looking at losing a fifth of that in charges for a single deal!

The FTSE 100 stockbroker announced last week it would reduce some of those charges.

While it trumpeted cuts in the online cost, the cost to buy stock by phone or post will move to a fixed £29. That may be good news for investors putting a lot of money to work, but for someone with £100 it compares woefully even with the already punishing current charge.

I use Hargeaves Lansdown as an example, but the point holds for all stockbrokers. Dealing costs, commissions, administration costs, and annual fees can add up. Minimum charges can make it uneconomic to invest with just £100 using some platforms.

But fortunately, there is a wide range of Stocks and Shares ISAs available, offering a multitude of cost structures.

So even with just £100, it can be worth looking for shares to buy as long as you are willing to do the legwork of finding the ISA that suits your own needs best.

Starting small but thinking big

In fact I see some advantages for someone to start investing on a small scale.

It can allow someone to get going quicker, rather than sitting out of the stock market for years or even decades while they save up a large pot of money to buy shares.

It can also make beginners’ mistakes less costly.

Finding the right shares

Still, one challenge is diversification.

Given the sort of minimum charges I mentioned above, it can be difficult to spread £100 over a few different shares cost effectively. But every good investor knows diversification is an important risk management strategy.

One share I think investors should consider itself offers some diversification thanks to its holdings in dozens of British businesses.

It is an investment trust, a type of collective vehicle whose own shares are traded on the stock market. Specifically, the City of London Investment Trust (LSE: CTY).

It has been on the go for over 160 years but its share price hit an all-time high just today (3 February). The trust’s dividend yield of 3.9% is above the FTSE 100 average of 2.9%.

Not only that, but City of London has raised its dividend per share annually for decades.

Whether it keeps doing so will depend on its portfolio performance. No dividend is ever guaranteed.

City of London’s UK focus means any downturn in the British economy is a risk to its performance.

But, more positively, it also gives it exposure to lots of well-run blue-chip businesses.

The post Is it worth looking for stocks to buy with just £100? appeared first on The Motley Fool UK.

With that in mind, here are three of the most appealing UK dividend shares to consider for a ‘to-buy’ list in 2026.

Legal & General

Legal & General (LSE: LGEN) is particularly appealing to income investors due to its stellar 9% forward dividend yield — more than double the FTSE 100 average. Not only that, it’s backed by almost 20 years of uninterrupted increases (barring the 2008 financial crisis).

Diversified across pensions, asset management and insurance, it generated £1.6bn core operating profit in 2024, up 6%. Critically, it has a Solvency II surplus supporting £5bn capital returns through 2027 via dividends and buybacks.

The risk? Further interest rate cuts could squeeze margins on annuities and investments, hitting profitability. But with future cash flow estimates putting the stock at 57% below fair value, there’s a good chance of growth this year.

There’s been much talk about how falling interest rates could impact finance stocks, but if there’s one I’m still confident on, it’s Legal & General.

Diageo

With a reliable dividend yield around 4.5%, backed by more than 25 years of consecutive increases, Diageo (LSE: DGE) seems like a dream for income investors. Plus, it offers defensive stability via popular brands such as Johnnie Walker, Guinness, and Smirnoff sold in 180 countries.

But after a 55% drop from peak prices, it now looks heavily undervalued, trading at a forward P/E of 12-13. Persistent weakness in US spirits consumption from GLP-1 drug-reduced demand has hurt profits, along with tariffs. However, growing demand elsewhere may help mitigate this risk.

New CEO Sir Dave Lewis (ex-Tesco) has already initiated a recovery, with brand revitalisation and $625m of cost savings under the ‘Accelerate’ plan.

A strong spirits portfolio and premiumisation provide pricing power and moat against rivals.

City of London Investment Trust

The City of London Investment Trust (LSE: CTY) is an ever-popular choice for income investors with its unmatched 59-year streak of rising dividends. In 2025, they reached 21.30p per share, up 3.4% from the previous year.

With a prospective yield of around 4.4%, it’s decently ahead of the FTSE All-Share‘s 3.5% average.

Managed by veteran Job Curtis since 1991, it invests mainly in large-cap UK equities for growth in income and capital, blending value stocks with dividend growers while trading at a slim 1%-2% discount to net asset value (NAV).

One risk is that its high gearing amplifies potential losses in a UK market downturn, as its equity-focused holdings lack overseas diversification. This is a key reason why any stock should only be considered as part of a broader portfolio.

But with manageable quarterly payouts and impressive revenue reserves, City of London remains one of the most sustainable dividend shares I know — even in downturns.

Final thoughts

The news of global conflicts and a weak economy looks bleak. But there’s still a wealth of opportunity out there for savvy income investors.

A sufficiently diversified portfolio of sustainable dividend shares remains one of the most popular ways to plan for retirement or build generational wealth.

The post 3 brilliant dividend shares to consider buying for 2026 appeared first on The Motley Fool UK.