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At this time of year, the idea of having a second income to fall back on can certainly seem attractive!
A second income does not necessarily mean that someone is juggling multiple jobs. There are different ways a person can aim to earn an additional income. One is buying up a bunch of shares in companies that will hopefully pump out dividends in future.
I understand that when someone decides a second income could come in handy, they may be thinking of how handy it would come in right now.
But taking a long-term approach can mean setting up a second income in future – and letting time work to your advantage between now and then.
As an example, say someone has a spare £9k and invests it in a diversified portfolio of shares that earn an average dividend yield of 7%.
After 25 years, that portfolio ought to have grown to a size where a 7% dividend yield would produce around £3,419 of passive income each year.
As a starting point, someone needs a practical way to invest. So one step they could take this week – indeed, right now before the year gets any older – would be choose a share dealing account, Stocks and Shares ISA or trading app.
It also helps for someone to set an investing strategy that plays to their strengths , reflects their investing objectives and aims to strike a suitable balance between potential risk and reward.
For example, a 7% yield is well above the current FTSE 100 yield of 3.1%. But I do not think it necessarily requires investing in little-known, risky companies (which is certainly not my cup of tea).
I reckon an investor can build a high-yield portfolio from quality blue-chip dividend shares in proven companies.
As an example, one share I think investors should consider is FTSE 100 financial services firm Legal & General (LSE: LGEN).
Despite yielding 8.3%, I already know that the company aims to grow its dividend per share in 2026. That is part of a longer-term strategy of annual dividend growth.
Can it deliver? After all, no dividend is ever guaranteed. Longstanding Legal & General shareholders discovered that during the 2008 financial crisis, when the company cut its payout.
Any big enough future financial crisis that leads to policyholders pulling out funds brings a similar risk. I also think this year’s expected sale of a large US protection business will leave a hole in the company’s revenue streams, although it will also bring in a large chunk of cash.
But I like Legal & General because it has shown it prioritises shareholder returns, has a strong brand, and uses a proven business model. The retirement market on which it is focused is large and resilient.