How I’d invest my £20k ISA to earn a second income of £125 a month

The current stock market crash is a great opportunity for investors like me, who want to generate double income by investing in dividend payments. FTSE 100 sharing.

This means that strong and solid UK stocks are down through no fault of their own, having been caught up in further selling triggered by Silicon Valley Bank in the US, Credit Switzerland in Switzerland, and today, Germany Deutsche Bank.

Top UK stocks are currently selling at reduced prices, but dividend yields are also higher. Yield is calculated by taking the company’s dividend per share and dividing it by the stock price. If the stock falls, the yield rises.

It’s a good time to buy dividend stocks

With London’s blue-chip index down 7.8% since the start of last month, to 7,376 at the time of writing, many of the juicy crops are now juicier. A quick headcount shows that six FTSE 100 stocks are currently paying income of more than 5% and 6%, while another dozen are yielding 7% or more.

Unfortunately, I didn’t have £20,000 to invest in my Stocks and Shares ISA on April 5, because I blew my budget by shopping last October, when the index fell below 6,000. I’ll still invest every penny I can in the days ahead, though.

If I had the full £20,000, I would have piled it into a higher income tier, and it would have yielded an average of 7.5%.

I think I can do it without taking too many risks if I do two things. First, I would diversify by buying at least five different companies, in different sectors. Second, I want to keep buying for the long term, meaning 10 years and preferably longer.

There is always a risk involved when buying a company’s stock. Any stock can fall, anytime. Even the multi-billion-pound FTSE 100 giants. Dividends are never guaranteed. If a company’s profits or cash flow fall, management has no choice but to reduce shareholder payouts.

Spread the risk across five stocks

However, with the Bank of England saying that inflation will soon begin to fall and the UK must avoid a recession, that’s a risk I’m happy to take today.

The five companies below all generate more than 7.5% of the income I need to achieve my target of £1,500 a year from £20,000, which is £125 a month.

mining giant Rio Tinto currently yielding 7.56%, British American Tobacco yield 7.71%, housebuilder Barratt’s Development yields 8.3%, insurance Legal & General Group yields 8.46%, and asset managers M&G yields 10.77%.

If I split the money into five equal chunks of £4,000, I’d get an average return of 8.56% on these five great income stocks.

That would give me £1,712 in the first year, which could be a second income of almost £143 a month. That’s £18 a month over target.

With luck, my income will increase, as these companies raise their profits and dividends. As with investing, there are no guarantees, but this looks like a great way to generate high passive income and (hopefully) grow it in retirement.