Here’s how I can make a second income worth over £20k a year

I am looking to make a secondary profit by investing in FTSE stocks.

Let me explain how I believe this is possible through dividend investing.

My way

An important aspect of my plan is to use the best investment vehicle possible. As I aim to earn dividends, a Stocks and Dividends ISA is the most efficient, in my opinion. This is due to favorable tax consequences on capital gains, and an allowance of £20k per year.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Next, I need to make sure I buy the best dividend stocks to build a pot of money. I will do thorough research before buying any stocks. I will look at things like financial health, record of returns, future prospects, operating history, and industry positioning.

Considering the risks, firstly, the benefits are never guaranteed. Also, each stock comes with its own risks that can hurt payouts. Finally, I will aim to get some level of return to maximize my investment. However, I would earn less, which would reduce my final salary.

Mathematics

By crunching some numbers, I realize that it is important to have some structure in my plan. If I were doing this today, I’d start things off with £10k, if I had it. Also, I can add £300 a month to my salary.

If I followed my plan for 25 years, and aimed for an 8% rate of return, I would be left with £358,709. I would be putting down 6% a year, which equates to £21,522 a year to spend on whatever my heart desires.

Stock selection

The stock I already have, and I think it can help me achieve this plan, of course Basic Health Structures (LSE: PHP).

I like Basic stocks for returns for a few important reasons. First, it is established as a real estate investment trust (REIT) which means that it must return 90% of the profits to the shareholders.

Next, it interacts with defense structures, such as GP surgeries and other health care provision. These have protective features as health care is important regardless of economic status.

Third, it has a good dividend yield right now, with a dividend yield of 7%. In addition, it has paid dividends since 2000. However, I understand that past performance is no guarantee of the future.

Finally, the company’s presence, earnings, and returns can increase as the demand for healthcare only increases linked to the increasing and aging population in the UK.

As I mentioned earlier, all stocks come with risks, and Primary is no different. Another problem is that of the recent labor crisis in the health sector. This has been linked to disputes over pay and working conditions that have led to an exodus of professionals from the industry, or to other countries. Primary may have assets to grow, but organizations such as the NHS that do not have the right staff in staffing centers can hurt growth and Primary income.

Another issue is economic instability. REITs use debt to finance growth and buy new assets. Debt is more expensive when interest rates are high, as it is now.

Despite the challenges, Primary looks like an excellent stock to buy for returns and growth.