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More and more people are starting to think about giving their finances a boost with a second income stream. And investing in the stock market can be a great way of doing this.
Investing can be risky. But in a world where prices keep going up, what better way to try and offset this by owning shares in the companies that make and sell the things we use every day?
Cost of living
In the UK, the cost of living seems to keep going up faster than wages. And that means people increasingly need to find extra income streams just to maintain their current living situation.
I think one of the in ways of doing this is by becoming a shareholder in a business. Specifically, one that uses part of their profits to pay cash dividends to investors.
For anyone with excess cash – either in a savings account or as part of a regular salary – this can be a great way to earn extra income. And there are a lot of opportunities to choose from.
It’s important to note though, that this is only for genuinely excess cash. Being financially secure in terms of near-term costs is a prerequisite for even thinking about buying shares.
Consumer goods
One interesting example from the FTSE 100 is Unilever (LSE:ULVR). The company makes a surprising amount of the stuff that ends up in people’s weekly shop, from Bovril to bath salts.
Being a shareholder means that every time someone buys Marmite or any other Unilever product, some part of their spend finds its way back to me. Not a lot, but a bit.
One of the nice things about this is that I don’t actually have to do anything. I can leave the firm’s management to deal with the logistics and marketing and get on with other things.
It’s also a pretty direct way of offsetting the effect of inflation. If prices keep going up, I think a good strategy is to be on the side of the organisations that are increasing them.
Competition
Now, Unilever can’t increase prices indefinitely. It operates in a competitive industry and customers can move to cheaper alternatives pretty easily if they choose. That’s a constant challenge for the company and it’s one that anyone thinking of buying the stock needs to be aware of.
But its size does give it some significant long-term advantages. One of the most obvious is that it can acquire raw materials in bulk. That means lower production costs than smaller operations, which I think is extremely important.
Another is the ability to negotiate for premium space on shop floors. Unilever’s branded products help bring customers into a store – and this gives the firm bargaining power.
Dividends
At the moment, Unilver distributes around £1.44 per share in dividends. With the stock priced at £45.86, that implies a yield of just under 3.5%. That might not seem like a lot right now, but the firm has a strong record of growing this over time. And I think its strong competitive position means there’s a good chance this continues.
For anyone wanting to start using extra cash to earn a second income, I think dividend stocks are a great place to look. And Unilever is definitely one to consider.
