3 attractive second income shares to add to a dividend portfolio

Buying and holding dividend-paying stocks can be an effective way to generate other income. Or dividends can be reinvested with the goal of building portfolio value over time. Then it may be possible to pay off a larger second income later – perhaps in retirement, for example.

However, it is a good idea to diversify your stock investment between several positions. And it’s wise to pick stocks from different industries if one sector is struggling.

One example of the risk of being overweight in one sector occurred last year when retail and consumer stocks took an outsized pummeling. So spreading your investment among different sectors can reduce some of the risks inherent in stocks.

An established business

And for dividend-led investments, it’s better to stick with established and larger businesses. Indeed, companies with small market capitalization can suffer from rapid stock price movements and volatility.

Above all, before buying any stock, research the underlying business. And one thing to look for is a record of consistent multi-year shareholder dividend payments.

It takes a strong business to pay dividends. And if shareholder payouts tend to increase a little each year, so much the better. And in such cases, there is often a good opportunity to find a business that generates stable and growing cash flow. After all, it takes cash to pay dividends.

After considering all of this, I found three interesting income stocks to add to my current dividend portfolio. And that means I’m a good candidate for further research with a view to buying for the long term.

But a seemingly attractive business can experience operational setbacks from time to time, possibly causing investors to lose money.

Three stocks to consider

However, I like the look IG group, a trading platform provider and financial technology company. With a share price of close to 800p, it has a market capitalization of around £3.3bn. The latest dividend yield of 5.9% for the trading year to May 2024 is 6.5%.

But I also wanted to Keller, geotechnical specialist groundwork contractor. With a share price of around 798p, the market capitalization is around £585m. And the expected dividend yield is around 5% for 2023. Meanwhile, the CAGR for dividends is just below 5%.

The third share of interest is this Hargreaves Lansdowne, a digital wealth management service provider. With a share price of around 846p, the market capitalization is £4.1bn. The dividend yield in June 2024 is 5.5%.

Like the other companies mentioned, the dividend is increasing and the CAGR is around 6.5%.

Three stocks are not enough for a balanced and diversified portfolio. But I think these three are good jumping off points to start researching. And while nothing is certain, they have the potential to serve investors well in the long run.