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Building a second income is one of the smartest things an investor can do. For me, it’s not about chasing get-rich-quick schemes, but steadily compounding returns inside an Stocks and Shares ISA or Self-Invested Personal Pension (SIPP) to eventually live off the dividends.
Imagine earning an extra £2,000 a month, or £24,000 a year, without working longer hours or taking on side gigs. It might sound like fantasy, but with time, patience and discipline, it can be done.
How much capital’s needed
To generate £24,000 of annual income, I’d need a portfolio of roughly £480,000 delivering a 5% yield. Investors could target this through a mix of UK dividend shares, income-focused funds and investment trusts.
Reaching that figure won’t happen overnight, of course. Someone investing £500 each month and achieving average annual returns of 8% could get there in about 25 years. If they generate a lower total return of 6%, it would take just under 30 years. That’s the power of compound growth, where gains are reinvested to generate even more gains over time.
The key is consistency: investing regularly, staying the course, and letting time do most of the heavy lifting
Land Securities: dividend hero
Land Securities Group (LSE:LAND) is among the FTSE 100 companies offering strong income potential today. The commercial property trust, known as Landsec, owns and manages offices, retail parks and shopping centres across the UK.
It’s been a bumpy ride lately, as working from home hits office demand, while the cost-of-living crisis and online retail hits shopping centre footfall. The shares are still down 4.5% over the past year, but have risen 12.8% in the last month, suggesting sentiment may be improving. Despite those swings, the dividend yield remains appealing at around 6.52%, comfortably above the index average.
The valuation looks reasonable too, with a price-to-earnings ratio of 12.3, nicely below the fair value figure of 15.
Latest full-year results, published on 21 May, saw Landsec report £393m profit before tax and a 5% increase in like-for-like net rental income, while portfolio occupancy rose again to 97.5%, reflecting steady demand for its better-quality sites.
The business has worked hard to simplify its portfolio, focusing on prime London offices and redeveloping older assets into mixed-use schemes. It’s also been reducing debt, which should strengthen its balance sheet if interest rates stay high for longer. If rates fall, that could lift profits and the Landsec share price.
Given these factors, I think investors might consider buying Landsec while the yield remains elevated. It’s unlikely to soar in value overnight, but for generating regular income, it could form a reliable part of a wider portfolio.
Building a balanced portfolio
I wouldn’t pile everything into one share, no matter how attractive the yield looks. I’d want at least 15 holdings across different sectors, mixing property, consumer goods, financials and utilities. That kind of diversification helps protect against dividend cuts or temporary share price dips.
Over time, this approach can deliver far stronger results than passively tracking an index. With many UK blue-chips offering 5%-7% yields, there’s real potential to build a meaningful second income, and no time to lose.
