2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10% at the moment.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Beginning an investing career from a standing start is never easy. Yet for many, that’s the way it has to kick off. And investors are waking up to the fact that it’s possible to make a second income from dividend stocks even when they have no savings. If I was starting from £0, here’s how I’d go about trying to turn that into a generous annual stream.

The real deal

One stock I’d look to include in my portfolio would be Real Estate Credit Investments (LSE:RECI). The stock is down 13% over the past year, with a current dividend yield of 10.39%.

The business invests in real estate debt secured by commercial or residential properties in the UK and Europe. Therefore, it differs from a real-estate investment trust (REIT) in that it doesn’t own the properties, but rather helps to fund purchases of them.

The dividend yield is very high, with regular quarterly income payments. Of course, with a yield this high, there must be risk involved. This is the case, investing in debt in the property market right now can be difficult! Property developers are struggling under the burden of high interest rates. Some are going bust because they can’t afford the repayments. If enough go bust that are within the fund, it could really hamper performance.

Based on the track record, I think the management team that runs the fund can navigate these murky waters. If interest rates fall, this will certainly help the share price to recover as sentiment improves.

Banking on success

Another example I’d buy if I was starting out would be Bank (LSE:TBCG) I recently wrote about the stock from the angle of capital gains, but it equally applies when thinking about income potential.

The stock has rallied by 38% over the past year but also boasts a dividend yield of 6.8%. Better financial results not only help to increase the share price but also provide more earnings that can be paid out as dividends.

The Georgian bank has benefitted from higher interest rates, enabling it to record a larger net interest margin. Further, the Georgian economy grew by 6.8% in 2023. So there was a greater level of general spending and lending activity for the bank to get involved in.

One concern is that the stock now trades at £31. This is high for a FTSE 250 firm and can make it unattractive for potential investors. If I was only looking to allocate a small amount of money, I wouldn’t get many shares of the company.

Checking the numbers

The average dividend yield of both stocks combined is 8.6%. I’d want to include other stocks in my portfolio to reduce the risk from just these two ideas. But let’s assume I could build a portfolio with this same yield.

If I invested £300 a month, after 15 years I’d have an investment pot that could be worth just over £110k. In the following year, this could pay me out £9.5k in passive income.

Of course, I’d need to reinvest my dividends along the way to help compound growth. There’s the risk that my pot might grow at a slower rate, taking longer to reach my goal. Yet it highlights how this strategy can be very profitable.

I have answered some of the requests below, in case anyone else has similar questions.

The blog is for those that want a secure retirement plan and don’t want to gamble with their future. If u want to gamble with your future u need to trade Total Return and your time would be better spent elsewhere.

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My daily routine is that I read the market news from 0700, watching for any news about the blog’s portfolio and the watch list. Later I will check the remaining Investment Trust news. Any private investor can use https://www.investegate.co.

Blog content, u need to care about what u are blogging, it’s easy for me to post as I have a defined number of shares to post about and I’m interested in charting. A word about Charting nothing but nothing can predict the future but if u want to make more money u need to follow the trend. Until news the trend is your friend.

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Tanker coming in to dock in calm waters and a clear sunset© Provided by The Motley Fool

This lesser-known stock has a stunning 12.3% dividend yield

Story by Dr. James Fox

Nordic American Tankers (NYSE:NAT) offers investors a stunning 12.3% dividend yield that’s paid quarterly.

On the surface, it’s an excellent option for passive income investors. Having delved deeper, I also think it’s an excellent option in general.

The dividend

For FY23, Nordic American is set to pay investors $0.48 per share. This is paid as a quarterly dividend and is equal to $0.12 per quarter. This is expected to rise to $0.50 per share per year in 2024.

The only issue is the dividend coverage. The coverage ratio tells us how many times a company can afford to pay its dividend from net earnings. Normally, we’re looking for a coverage ratio of two times as a benchmark for a healthy dividend that has room to grow.

However, Nordic American’s model is different. With earnings expected to come in at $0.63 per share in 2024, the dividend coverage ratio is just 1.26. I would consider that quite weak, but the company is at the forefront of a super-cycle in the tanker sector.

Tailwinds

The price of leasing vessels has risen substantially over the past two years. Nordic American operates 20 Suezmax tankers — these are the largest vessels that can fit through the Suez Canal — and they’re among the most in-demand right now.

As we can see from the below chart, the cost of leasing a Suezmax tanker has risen around 133% from its lows. And since Hamas’s attack on civilians and the ensuing invasion, Suezmax tankers have been trading at a premium.

Source: Fearnleys© Provided by The Motley Fool

So, why has this happened? Well, there are several factors.

• A dearth of vessels: Companies ordered fewer vessels during the pandemic. As such, the global fleet is ageing and there are fewer vessels to respond to growing demand.
• Fewer shipyards: Tankers are massive vessels and they take years to build. Compounding this shipyard closures. There are less than half the number of shipyards today as in 2007.
• Houthi attacks: The attacks mean vessels are rerouting around the Cape of Good Hope to avoid the Suez Canal, adding thousands of miles to certain journeys. In turn, this means longer journeys, and less available supply.
• Panama drought: Capacity at the Panama Canal has been cut by around 60% due to a drought. Vessels either have to sit in queues or find an alternative route.

The bottom line

Nordic American’s dividend coverage ratio could certainly be stronger, but given the industry dynamics, I’m not too worried. Given the shortage of tankers in the sector, analysts are forecasting a multi-year super-cycle that will push earnings higher. It could be a transformative period for companies that are well-positioned, and I believe Nordic American is one.

£££££££££££

Not an IT so not for this blog.

A trend has only 3 directions

Up

Down

or Sideways

Once you understand the direction u can start to count your money. I prefer buying dividend Investment Trusts and looking at the chart to see where best I can re-invest my dividends.

I copy the chart above as a picture paints a thousand words.

It’s 9 dma Simple and Weighted, only to be used with a proper money management strategy.

Note the red arrow where dividend xd dates interfere with the short term direction of the chart. This is not a foolproof way of trading just something to assist u before u trade as u would have been whipped sawed at the blue arrow. Use only if u have decided to buy a share and then use the chart as an entry an exit point.

Using the chart u would have bought around 505p, collected the dividend of 17p, u may have sold on the xd date or not. If u did sell u could have bought back from the chart. I am not authorised to give buy or sell advice, so u need to make your own decisions about your hard earned.

The Motley Fool By Stephen Wright

Whether it’s growth or dividends, UK shares can be great investments. In my investment portfolio, I have stocks from both the FTSE 100 and the FTSE 250.

Working out what shares to buy can be a challenge. But there’s a thought experiment I like to use when I’m figuring out what to invest in.
As an investor, I want to focus on the highest quality opportunities available. Since I don’t have unlimited funds, it’s important to me that I try and avoid second-rate opportunities as far as I can.

One way of doing this is imagining a genie appears and offers to double my net worth – but with one catch. I have to invest it all straight away in no more than two stocks.

Anything I invest in can’t be sold for 30 years, so my ability to generate a return depends almost entirely on the underlying business. Supposing I take the offer, the question is, what I should buy?
Ultimately, whatever I settle on probably deserves a place in my actual investment portfolio anyway. And right now, I think I’d opt for a pair of passive income opportunities.

Games Workshop
The first stock is Games Workshop (LSE:GAW). The company looks like it combines the best elements of both growth and income stocks.

Widening margins and increasing revenues have helped the business grow its earnings per share at an average of 32% a year over the last decade. That’s impressive.

There’s also a dividend with a 4.25% yield on offer. And the company’s low capital requirements puts it in a strong position to maintain this.

A price-to-earnings (P/E) ratio of 23 is a risk – it requires growth to continue and this can’t be guaranteed. But this is an unusually good business I’d be happy to own shares in for a long time.

The PRS REIT
Another stock I’d choose is The PRS REIT (LSE:PRSR). The firm’s a real estate investment trust (REIT) that leases a portfolio of houses around the UK.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

As a REIT, the company distributes 90% of its rental income to investors as dividends. So I can buy shares, do nothing, and receive a 5.15% return a year in cash.

PRS has £415m in debt, which is a lot for a £426m firm. Investors should be aware that if the company can’t refinance this when the time comes, the dividend’s likely to fall.

Around £352m is fixed at 3.8% for an average of 16 years though. Within that time, I’d expect the business to find an opportunity to refinance, maintaining its dividend along the way.

Going all in
Fortunately, I’m not required to invest 100% of my net worth. But even if the situation isn’t realistic, thought experiments like this can reveal important insights when it comes to finding stocks to buy.

I’m looking to build a diversified portfolio, but I’m also not looking to compromise the quality of my investments along the way. I want all of my investments to be ones I’m confident in.

A good way of assessing this is by thinking about whether I’d be happy going all in on that stock if I had to. If so, there’s a decent chance it’s a stock I should consider buying.

ACTIVITY BREAKDOWN
Top 10 Holdings

Name Holdings
DS Smith PLC 4.7%
BP PLC 4.3%
National Grid PLC 4.2%
Imperial Brands PLC 4.2%
Shell PLC 4.0%
HSBC Holdings PLC 3.7%
SSE PLC 3.6%
British American Tobacco PLC 3.2%
CMC Markets PLC 3.1%
Conduit Holdings Ltd 2.9%

With bid chatter in the press for BP, the latest u might say. But hold on too your Income Trusts, as most hold BP, to see if there are any developments.