Dividend-paying FTSE shares can be great vehicles for generating a second income. My attention is on three to consider as soon as more spare funds become available to me.
Consistent and growing cash flow
One of the key requirements for me is that the businesses behind the stocks are well-established with steady operations.
For example, I’m keen on Supermarket Income REIT (LSE: SUPR). The company does what it says on the tin. It invests in supermarket real estate in the UK, which companies like J Sainsbury, Tesco and others then lease.
On top of that, it’s set up as a Real Estate Investment Trust (REIT) and the rules therefore require the business to return 90% of its taxable profits to shareholders each year. So the business really is focused on delivering shareholder income.
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.
The main attraction for me is the sector can be steady because supermarkets tend to keep trading even through recessions. So that means the occupiers keep paying their rent!
The consistency of trading shows in the multi-year financial and trading record. For example, the cash flow and dividend figures have been edging higher and didn’t even pause during the pandemic.
Cyclical considerations
There are a few risks for shareholders though. One is that the company has big borrowings and can be sensitive to changes in interest rates. Another is the stock’s vulnerable to changes in sentiment about the wider property sector.
Both those factors can lead to volatility in the share price, and it’s fallen a fair bit recently.
So it would be easy for an investor to mistime a purchase of the shares and lose money. However, volatility and sentiment can swing both ways, as can interest rates. So I’d aim to soften the risks by adopting a long-term approach to holding the shares.
I reckon it’s a good idea for me to consider the stock. After all, with the share price near 74p, the forward-looking dividend yield’s just over a whopping 8%, or so!
Research and diversification
However, I wouldn’t put all my eggs in one basket, so diversification over several dividend-paying shares is key to building a successful passive second income portfolio.
With that in mind, I’d also consider Legal & General in the financial sector. With the share price near 231p, the forward-looking dividend yield’s above 9% for 2025. That’s big, but one of the risks is that financial companies are cyclical, which may lead to volatility over time.
So I’d look at ITV too. The vertically integrated producer, broadcaster and streamer is another business vulnerable to the ups and downs of the economic cycle. However, right now, its recovering and turning itself around.
That’s attractive, and so is the almost-6.6% dividend yield for 2025 with the current share price near 78p.
All three of these stocks are worthy of further and deeper research and I’d love to buy them.
This post was originally published on Motley Fool
