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The idea of earning extra money with minimal effort outside of work may seem too good to be true. But is not. I plan to do this by buying dividend stocks.
It's a method I've used for a while now. With the dividends I receive I reinvest them. This allows me to benefit from compounding, which essentially means I earn interest on my original investment as well as my additional income.
The UK stock market is a great place to buy these types of shares. Average FTSE 100 The yield is around 4%. He S&P 500 The average, for example, is only about 2%.
I have my eye on two dividend stocks for February. If I have the cash, I'll add them to my portfolio.
Legal and general
I already own Legal and general (LSE: LGEN). Right now, I'm up 15.9%. However, I don't plan to stop there.
With a 7.7% yield, you'd be hard-pressed to find a better dividend ratio. There are only a few in the FTSE 100 that offer higher returns. That being said, I should point out here that dividends are never guaranteed.
I think February could be a good time to buy some L&G shares. It has recorded good performance in recent months. But over the last year, it's down about 2%. At 254.6p, I feel like a bargain.
In my opinion, Legal & General is in good shape to take on positions in the coming years. Its assets under management have fallen as investors have withdrawn their cash to keep it safe in tough times. But as the economic outlook strengthens and sentiment improves, as will be the case over the next two to three years, I think Legal & General's share price will get a boost.
HSBC
I am also interested in HSBC (LSE: HSBA). I've had the international giant on my watch list for a while now. I hope to have some cash to invest in February to finally purchase it.
The stock had a strong 2023. Over the year its price rose more than 20%. I am sure it will be able to continue working in the future.
HSBC seems very cheap. It currently trades at just 5.7 times earnings. This is comfortably below the average of its FTSE 100 peers. Like Legal & General, I can also generate passive income with its substantial 5.4% yield.
The biggest threat to the bank is its exposure to Asia. A lot has been invested in the region. With ongoing geopolitical tensions, as well as issues including a faltering Chinese property market, this could potentially see stocks suffer in the coming months.
However, I believe that in the coming years your focus on the region will pay off. Within Asia, there are exciting, fast-growing economies such as China and India. Recently, HSBC Private Banking highlighted how these nations will continue to benefit from factors such as a rising middle class. With this in mind, I see HSBC as a smart long-term bet.