£9k to save? Here’s how an investor can aim to turn it into an income of £560 a month

Savings can be put to work in the stock market for a second income, in the form of dividends paid by other stocks. That can be very profitable and allows investors to benefit from the success of proven blue-chip companies without having to do any of the hard work themselves.

Here’s how an investor can target an average monthly income of £560 by investing £9k, while sticking to proven UK companies.

Getting started

The first thing an investor might consider is the practical question of How spending money. To that end, I think it makes sense to explore the wide range of retail accounts and Shares and Shares ISAs available.

Each investor has their own goals and financial situation, so I think it would be helpful to take the time and find what seems like the best match.

Creating a revenue generating machine

Once that is done, it is possible to start buying shares. I use the plural on purpose. Even the most promising assignment can disappoint.

Shares are not guaranteed to last and there is a risk of share price declines. So diversifying between a wide range of stocks is a simple but smart risk management strategy.

Consider such a diversified blue-chip portfolio FTSE 100 stocks produce an average yield of 7% (something I discuss in more detail below).

Seven percent of £9k is £630 a year. So what about the £560 target? By taking a long-term approach to investing and reinvesting (to combine) dividends where after 35 years, a dividend portfolio yielding 7% should be producing £560 per month in dividends.

If 35 years sounds like too long to wait, a similar approach may work in the short term. If so, the income for the second month will be less.

On the hunt for dividend shares to buy

That 7% might not sound like a big number, but most FTSE 100 stocks don’t offer that high of a yield. In fact, it is close to double the current rate.

But some blue-chip stocks do give such a yield, or even more at present. As an example, one fund share that I think investors should consider is Insurance Aviva (LSE: AV).

The FTSE 100 share yields 7.3%. It has also increased its dividend per share in recent years, though that comes after a big cut in 2020 (a reminder that no dividend is guaranteed to last).

It has a strong position in the UK insurance market. And if its taking a rival Straight Line you succeed, that can be even more powerful. Economies of scale can also help the profit margin of the combined company.

Insurance is a large market with strong ongoing demand. I see Aviva as well positioned to take advantage of that, thanks to strong brands, a large existing customer base (many of whom buy multiple products from the company) and vast underwriting experience.

Will profits last, let alone continue to grow? As Direct Line proves, insurers can suffer badly if they take the wrong risks. Given its strong market position, that’s a real risk I see for Aviva.

On balance though, I see the 7.3% yield as a dividend worth considering for investors.