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He FTSE 100 and FTSE 250 They can be great places to earn a second income. These indices contain tons of passive income stocks that have illustrious histories of generating large and growing dividends.
If you had £10,000 left over to invest today and wanted to achieve a weekly dividend income of £100, you would spend the money on a handful of blue-chip stocks from these indices.
Big benefits
Analysts advise hundreds of companies on the London stock market to pay dividends. So why could Footsie and FTSE 250 shares be the best way to earn passive income?
Here is a short list:
- Established businesses. These indices are full of large, stable companies that have a long history of profitability.
- Strong cash flows. The substantial and consistent cash flows generated by these companies support regular dividend payments.
- High dividend yield. Returns on large- and mid-cap stocks tend to be high compared to smaller stocks.
- Market leaders. Dominant positions in the industry can provide stable income and profits, even during recessions.
- Miscellaneous income. Exposure to different regions, sectors and product categories helps companies remain resilient when problems arise.
<h2 class="wp-block-heading" id="h-which-stocks-would-i-buy”>What stocks would you buy?
With this in mind, which four companies would I buy to reach my weekly dividend target?
Financial service providers Aviva and M&G It would be near the top of my list. These are companies with an important reputation, a quality that is worth its weight in gold when it comes to taking care of people's money. They also hold leading positions in the growing wealth and retirement markets. However, revenue could be at risk if consumers continue to feel the squeeze.
I would also look to add HSBC Holdings to my wallet. Like those other FTSE 100 stocks, it has a strong balance sheet which helps it pay big dividends even if profits fall. In the short term, its profits could take a hit as the key Chinese economy struggles. But the long-term prospects here are strong, as rising levels of wealth and population in Asia steadily drive demand for banking products.
Finally, I would buy renewable energy stocks. Octopus Renewable Energy Infrastructure Trust. The FTSE 250 business' profits would be vulnerable in the event of interest rate rises. However, I still expect earnings here to rise strongly in the long term as demand for green energy increases.
A weekly income of £100
The average dividend yield of these shares is 8.8%. Therefore, if the payout forecasts prove accurate, £10,000 invested equally between these companies would give me dividends of £880 this year.
That equates to around £17 a week of passive income, short of my target of £100.
But I realize that the key to successful investing is taking a long-term view. To quote billionaire stock guru Warren Buffett: “Someone is sitting in the shade today because someone planted a tree a long time ago..”
With that £10,000 investment in those five shares and the dividends reinvested, you could reach that £100 a week target in just over 21 years, using the calculation above.
But you could actually achieve this more quickly if these companies increased their dividends over time, as I expect they will.
While dividends are never guaranteed, our example shows how (in the long term) buying UK shares can be a great way to earn a second income.
