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At the end of the year, I always try to do a mini personal financial statement to see what my cash flow has been like that year. I'm sure other investors do something similar! For excess funds left over in savings, investors can try to put them to work before we reach 2025 by earning a second income from dividend stocks. Here's an idea to consider for a lump sum, such as saving £3,000.
Invest over time
Some people think that the best way to invest savings in the stock market is to put a lump sum to work. In fact, I don't agree with this approach. I understand why some think investing the £3,000 in one go makes sense as the money can be put to work straight away.
However, a different option to consider is to divide the £3k into six parts of £500 and invest this amount each month. When it comes to dividend stocks, this can offer the investor the ability to take advantage of opportunities as they arise.
For example, a stock right now might have a dividend yield of 5%. However, within a month, a drop in the share price could have pushed the yield up to 6%. At that point, it could be a great part to acquire. Another case could be a company that pays a dividend of 10 pence per share. However, in annual results released a few months later, strong profits could mean management declares a 15p dividend. That could be the catalyst to make it a perfect stock to buy at that time in the future.
Increased dividend payments
An example of this is TBC Bank (LSE:TBCG). If we go back to the summer of 2022, the dividend yield was around 2.5%. At the time, it wasn't as attractive to income investors. However, since then, the dividend yield has been increasing, largely due to increasing dividend payments per share. The current yield is 6.59%.
Over the past year, the stock is up 11%. The bank operates in Georgia and Uzbekistan, and great progress has been made recently in terms of digital banking implementation. Third-quarter results showed it has 1.4 million additional monthly active digital users compared to the same period last year. The more engaged customers are, the easier it will be to spend and make payments, generating more revenue for the bank.
Another factor that is helping the bank is the economic performance of developing countries. For example, Georgia's GDP grew 11.1% year-on-year in the quarter! Strong growth is undoubtedly helping to provide a tailwind for the banking sector.
As a risk, concerns about fraud and money laundering in emerging countries are greater. TBC will likely need to invest more in compliance and other areas to ensure scandals do not arise as it continues to grow.
Diversify risk
If an investor were to deposit £500 into TBC Bank and accumulate half a dozen similar investments yielding over 6.5%, I think this would be a solid second source of income. Dividends are not guaranteed in the future, but spreading risk across different companies helps reduce the potential impact of a dividend cut on a portfolio.
