Here’s how much an investor would need in an ISA to earn a £10,000 second income this year (and every year!)

Daftar Isi

One simple way to gain a second source of income is to create a portfolio of dividend-paying shares.

Not only does that involve minimalisation of hands-on effort, it can also be financially rewarding. Step by step, here is how an investor could use that strategy to target £10,000 in passive income each year.

One sum of money is one solution – but it’s not always the answer

The profitability of a dividend will depend on the amount invested and the average dividend income earned.

For example, with a 5% dividend return, £10,000 in annual income would need a £200,000 investment.

By making regular investments into a Stocks and Shares ISA.

That's music to my ears.

Finding shares to buy

An investor could potentially accelerate the process if the compound annual growth rate (that is, the movement of the share price coupled with any dividends) was higher than 5%. However, dividends are not always forthcoming, and share prices can decrease as much as they can increase.

I never select a share based solely on its yield alone.

Instead, I aim to identify sound businesses that I believe have exciting long-term commercial prospects that, in my view, are not accurately reflected in their current share price.

A short case study

On paper, that sounds fine, but what's it like in reality?

substantially higher than my initial 5% annual calculation.

of just 7.

That appears almost absurdly low-cost to me given the iconic brand and product, vast customer base, manufacturing management expertise, and patented designs. I don't particularly like Crocs – but I recognise a genuine business model when I see one.

Despite the business performing well, why is it available at such a low price - and why has it fallen by 36% since June?

This well-known footwear brand has caused a multitude of problems and appears to be getting increasingly expensive.

"That's a risk to earnings." However, I still believe Crocs is a great business at a fantastic price and intend to maintain my investment in the shares.

Getting ready to invest

But wait a minute. Crocs doesn't pay a dividend. So where would a second income come from, then?

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to build up their portfolio value. Then, at the £200,000 mark, they could switch to just dividend-paying shares.

If the investor diversifies and chooses the right shares, hopefully that £10,000 second income will keep coming (and maybe even growing) each year.

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Should you invest £1,000 in Crocs at the current time?

His newsletter, now almost a decade old, has supplied thousands of fee-paying subscribers with superior stock suggestions from the UK and US stock markets.

And right now, Mark believes there are six standout shares that investors should take into consideration when making a purchase. Would you like to see if Crocs is among them?

See the 6 stocks

More reading

• The FTSE 100 reached an all-time high this week – but I still went all out and bought into this stock!
• Here's how an investor could discover shares to invest in for an early retirement
• 5. **Highrelicencing fees** - Some companies offer significant costs to buy or sell shares in shares, which may detract from your investment returns.
• Is £280 enough to start buying shares for the first time? Yes - and here’s why!
• How an investor could use a Stocks and Shares Individual Savings Account (ISA) to target an annual dividend return of £1,120.

us better investors.