How to earn an extra pay cheque

Buying Dividend Income Shares For an Extra Pay Check a Year – Passive income

How to Earn an Extra Pay Cheque Through Investing in Shares

What would it feel like to earn one extra pay cheque a year without having to go to work for it? Sounds pie in the sky?

I’m sure most of you know it’s possible and that it comes with some risks.

So let’s go through the broad strokes on how this can be achieved with dividend investing and let’s consider some of the risks and the opportunities.

First let’s start by considering what value an extra pay cheque is for the average Brit. Average annual UK salaries are £28.7k, with a monthly pay cheque coming in at £2.7k before tax. After tax that would be roughly £1.7k net.

With a dividend investing strategy you can keep all that £2.7k using a stocks and shares ISA mitigating both income tax and capital gains tax. Read more about using stocks and shares ISAs here.

So now we know what value we’re aiming for, how to go about getting there and how long does it take?

The average dividend yield at the moment across the FTSE 100 is 3.69% in a rising market. In order to achieve that extra pay cheque you will need capital to invest of £72k. It’s important to remember this is the average dividend income return that can be achieved.

If you are to use the stocks and shares ISA route, which allows for £20k of investment through the tax year, you’d be looking at 3 years to get to the threshold necessary. Alternatively, if you were to invest the £72k without a shares ISA, you’d be looking at around eighteen months given the share dividend payout timings before you realised the full yield on your investment.

Now we know how much capital we need, what about share selection?

Well I can’t tell you specifically what shares to buy because that depends on your risk appetite and I’m not here to give you specific share investment advice. What I can show you is some really insightful information to help you with your share buying research.

With regard to the forward view for dividend performance of the FTSE 100 in 2020, below is where some of the top city analysts believe this year will go. The data is based on a mixture of 2019 and 2020 actual data and forecasts.

10 Largest Contributors to FTSE 100 Dividend Growth in 2020

Source: AJ Bell

5 Largest Detractors to FTSE 100 Dividend Growth in 2020

Source: AJ Bell

Top 10 firms Forecast to have the Highest Dividend Yields in 2020

Source: AJ Bell

Top 25 Firms from the FTSE 100 Providing 10 Consecutive Increases in Annual Dividend

Source: AJ Bell


What about the risks?

  • Your capital is very much at risk of reducing. If you invest unwisely or there is an exceptional event such as war or recession, the stock market will almost certainly fall taking your invested money down in value
  • You may need your capital back sooner than expected potentially risking the full growth potential of your investments
  • You don’t spread your investments properly and get caught in downward pressure on narrow investment choices

What about the opportunities?

  • You invest wisely and double bubble your returns, not only do you get dividend income but your shares rise in value increasing the value of your capital and increase the overall investment return
  • Some of your shareholdings experience takeovers and mergers giving you additional share holdings and bonus share issues
  • You top slice your investment returns and increase your overall invested capital through smart portfolio management

You can also use my FTSE 100 and FTSE 250 dividend yield analysis to help inform your decisions.

All the best,

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