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There are lots of different ways people earn a second income – and they do not all involve working more hours.
For example, putting some spare money into a portfolio of dividend-paying blue-chip shares could help someone boost their income.
Using dividend shares to supplement your income
Imagine that someone has a spare £20k. They could put that into a Stocks and Shares ISA, and buy a range of shares.
If those shares yield an average of 5% or more, that £20k ought to generate at least £1,000 annually in income.
That presumes that the dividends are maintained. That is never guaranteed: they can be cut. Then again, many companies aim to grow their dividends over time, depending on the business performance.
Not everyone has a spare £20k on hand, of course. Starting from zero, the same approach can be used, with contributions over time building up the ISA.
Balancing potential rewards with risks
Is 5% achievable?
I think it is. It is well above the current average yield for FTSE 100 shares (3.1%). But there is more to the stock market than just FTSE 100 shares – and even within the top flight index, there are lots of shares that yield more than 3.1%.
Whatever the yield, an investor needs to look at more than just what dividend a share currently pays. It is always important to consider the source of dividends.
After all, the second income depends on how likely the chosen shares are to pay a certain level of dividend in future.
Here’s one share to consider!
One dividend share I think merits consideration as part of a portfolio targeting a second income is ITV (LSE: ITV).
The FTSE 250 share yields 6.1%. It also aims to maintain its dividend per share at its current level at a minimum – and perhaps grow it.
But these are not easy times for legacy broadcasters. ITV’s 15% share price fall over the past five years (and even more over the past decade) reflects that.
Ongoing shifts in the broadcast industry could mean ITV’s advertising revenues fall over time. But the company has also been aggressively growing its digital footprint over the past few years.
On top of that, a large part of ITV’s business is providing studio space and other production support to a range of broadcasters and content makers.
Taking the long-term view
Investing today could potentially help an investor earn a four figure second income next year.
What about beyond that, though?
One of the possible advantages of taking time and effort to select high-quality shares is that they offer the potential to pay dividends not just next year, but far beyond.
That opens up the potential that a single investment today could produce a second income year after year for decades.
Although dividends are never guaranteed, I expect many businesses to keep doing well and paying them far into the future.
The challenge as an investor is trying to figure out which ones!
