Image source: Unilever plc
Sometimes a little extra money can make life easier or simply more enjoyable. Some people try to earn a second income by taking another job or doing something like selling. eBay.
My own approach to earning that extra income is to invest in dividend stocks. That doesn't take a lot of time and it doesn't take a lot of money.
As an example, this is how I would establish a second steady income this year by setting aside just £20 each week.
Set up a stock trading account
Since my plan revolves around buying stocks that I expect to pay me dividends, I need a way to do this.
Setting up a shares trading account or stocks and Shares ISA doesn't have to be complicated or time-consuming.
But different ones may suit me better or worse, depending on my own circumstances and financial goals. Then I would compare the options before making a decision.
Find stocks to buy
That £20 a week adds up to over a thousand pounds you could invest annually.
Dividends are paid when a company decides to do so and has enough cash. That means they can also be canceled or cut at any time.
Therefore, I wouldn't focus on dividend history when choosing stocks to buy. Instead, my approach would be to find companies that I thought had the ability to waste a lot of excess money in the future that could be used to fund dividends.
An example
Let me put this into a practical context. Unilever sells products in markets where I expect they will continue to see high customer demand, from ice cream to laundry detergent.
Own iconic brands such as pot and Hellmann's It gives you pricing power, as there is often no direct substitute. That helps build consumer loyalty and makes them more willing to accept premium prices.
Unilever needs to spend some of its profits on things like advertising, product development and factory construction. But if you can generate enough additional cash even after covering these expenses, you could use it to fund dividends.
In fact, right now the consumer goods powerhouse pays a dividend every quarter. By purchasing its shares, you could receive such dividends in the future.
Building Passive Income Streams
As it happens, I don't have Unilever in my portfolio at the moment. There are risks, such as inflation affecting profit margins. But I still like the business model and would happily buy more shares if I had extra money to invest.
There are actually quite a few different stocks that I would happily buy to earn a second income with additional funds.
Diversifying my portfolio in that way could help me continue earning a second income even if a company suddenly cut its dividend, like Direct line He did it last year.
Set expectations
How much you earn will depend on the average dividend yield. Investing £1,040 at a 5% yield, for example, should earn me around a pound a week in dividends, on average.
My goal would be to generate a second, larger income over time simply by following my plan, year after year. The stocks I buy this year could still be earning me regular dividends 10, 20, or even 50 years from now!
