3 stocks to generate a second income

Earning a second income doesn’t necessarily mean working more hours at work. It can be achieved through investing in stocks that also pay dividends. That’s why I personally save to invest in monthly income stocks.

Here are three UK stocks that I think have the potential to continue to reward shareholders with double-digit income streams for years to come.

Financial services center

Pension and insurance giants Legal & General (LSE: LGEN) is one of my favorite stocks for reliable income generation. It has around £1.4trn of assets under management and has been steadily increasing its payouts for decades.

Today, the dividend pays 7.6 %. And when that happens, it could rise to 8% next year. Usually, a high yield may mean that a dividend cut has been implemented. However, I don’t think that’s what happened here.

For 2023, analyst consensus is for L&G to earn 34.6p per share and pay 20.5p per share. That shows dividends are covered approximately 1.7 times by earnings. Generally, a dividend cover of around two is considered a safe range. So the anticipated payout seems sustainable for now.

In the long term, global demand for retirement services will increase as the population lives longer. And L&G’s asset management business should grow as the stock market rises.

Accelerate demand

If the world is going to reach net-zero emissions, it will require an unprecedented mining boom. This is the extraction (in large quantities) of not only rare earth elements, but all kinds of metals and minerals.

Copper is needed to switch electricity, while steel is used to make wind turbines. And electric vehicles require lithium and cobalt. I think it’s a good way to invest in this long-term theme BlackRock World Mining Believe it (LSE: BRWM).

This trust invests in many companies that extract the metals that make up the modern world. These include mining behemoths BHP, Rio Tintoand Glencore.

There has been chronic underinvestment in the mining sector in recent years. So I expect this supply-demand imbalance to keep metal prices up for the foreseeable future. That should be equal to the increase in profits and payouts.

At 760p per share, the trust offers a dividend yield of 4.3%.

resilient brands

With a dividend yield of 2.2%, the drinks giant Diageo not usually considered an income stock. However, the company has an outstanding record of dividend growth over two decades.

And management last week stated its medium-term guidance for “sustainable organic operating profit growth in the range of 6% to 9% for fiscal 23 to fiscal 25“.

These increased profits are driven by the company’s premium brands, which include Johnny Walker whiskey and slip July tequila.

Diageo per share traded from 62.2p in fiscal 2017 to the 80.5p it expects this year. I hope it will only head north in the coming year.

However, it should be noted that a deep recession can affect the stock’s performance. Commodity and equity markets could collapse, and consumer spending on alcohol could take a big hit. If earnings go south, dividends can be cut to preserve capital.

However, over the long term, I expect the stock to prove resilient and offer excellent second income potential.