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The current stock market crash is an excellent opportunity for investors like me who are looking to generate a second income by investing in dividend-paying stocks. FTSE 100 share.
It means strong, solid UK stocks are falling in value through no fault of their own, having been caught up in a sell-off triggered by Silicon Valley Bank in the US. swiss credit in Switzerland and, from today, in Germany german bank.
Major UK stocks are now selling at reduced prices, while their dividend yields are also higher. Returns are calculated by taking a company’s dividend per share and dividing it by the share price. If the stock falls, the yield goes up.
A Good Time to Buy Dividend Stocks
With the London Blueprint Index down 7.8% from the start of last month, to 7,376 at the time of writing, many juicy returns are now even juicier. A quick tally shows that six FTSE 100 stocks now pay income of more than 5% and 6%, while a dozen others yield 7% or more.
Unfortunately I don’t have £20,000 to invest in a stocks and shares ISA by April 5th as my budget was blown shopping last October when the index fell below 6000. However I will continue investing every penny you can in the next few days.
If I had the full £20,000, I’d put myself at the top end of the income scale and look to generate an average return of 7.5%.
I think I could do it without taking too many risks, as long as I did two things. First, I would diversify by buying at least five different companies, in different sectors. Second, I would try to hold my purchases for the long term, ie 10 years and ideally much longer.
There are always risks when buying company shares. Any stock can fall, at any time. Even the billionaire giants of the FTSE 100. Dividends are never guaranteed. If a company’s revenues or cash flows fall, management will have no choice but to cut payments to shareholders.
Spread my risk among five stocks
However, with the Bank of England saying inflation will soon start to fall and the UK should avoid a recession, it’s a risk I’m willing to take today.
The following five companies produce more than the 7.5% revenue I need to reach my goal of £1,500 per year from £20,000, which drops to £125 per month.
mining giant red river currently yields 7.56%, british american tobacco yields 7.71%, home builder Barratt developments yields 8.3%, insurer Legal and General Group returns 8.46%, and asset manager M&G returns 10.77%.
If I split my money into five equal parts of £4,000, I would get an average return of 8.56% on these fabulous five income shares.
That would give me £1,712 in my first year, which equates to a second income of almost £143 a month. That’s £18 a month over my target.
Hopefully my income would increase over time as these companies raise their profits and dividends. As always with investments, there are no guarantees, but it seems like a great way to build a high and (hopefully) growing passive income in retirement.
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