Who wouldn’t fancy a second revenue? Particularly one you don’t must elevate a finger to generate. It’s potential to get simply that, by investing in FTSE 100 dividend shares. Two or 4 occasions a yr they make common money funds to shareholders, who can do what they need with these payouts.

Sometimes, traders reinvest their dividends to purchase extra shares whereas of working age, then draw them as a passive retirement revenue after they retire.

If an investor had £2,000 to take a position this March, and doesn’t want the cash for at the very least 5 years (and ideally a number of many years), it ought to work a lot tougher in shares than money. 

FTSE 100 shares construct wealth slowly however steadily

Cash invested in dividend shares ought to develop over time and compound with each reinvested payout. Nevertheless, traders should additionally anticipate loads of volatility on the best way. Share costs can fall in addition to rise. Dividends could be minimize at any time. The actual advantages solely shine by over time. Persistence is required.

If an investor may generate a mean complete common return of 9% a yr from dividends and share price development, that preliminary £2,000 may doubtlessly develop into £26,534 over 30 years. That’s a reasonably good-looking return, given the tiny preliminary stake. Investing £2k yearly would ship £297,150 after 30 years.

Any individual who invested £2k each month would finish up with virtually £3.6m! Not a nasty goal to intention for.

Let’s return to that one-off £2k. If it does develop to £26,534 after which generates a dividend yield of 6% a yr, that may produce a passive revenue of £1,592 a yr. Clearly, that’s nowhere close to sufficient to dwell on in retirement, however it’s not unhealthy from only one month-to-month funding.

One FTSE 100 inventory that would doubtlessly play a key position on this dividend development technique is British American Tobacco (LSE: BATS). It at the moment provides a formidable trailing dividend yield of seven.8%. That’s far increased than any financial savings account, and there’s additionally the potential for capital development. The truth is, the inventory’s up 26% during the last yr.

There are dangers with investing in tobacco shares, after all. Conventional cigarette gross sales are declining, and regulators proceed to focus on the trade. Any investor contemplating this inventory should take that under consideration.

The shares look good worth

However British American Tobacco is adapting, increasing into vaping and different next-generation merchandise. If it might keep its market dominance whereas rising in these areas, it may stay a powerful revenue inventory for years to return.

One other attraction is its valuation. With a price-to-earnings (P/E) ratio of simply 8.3, the inventory appears to be like low-cost in comparison with many different FTSE 100 corporations. I feel it’s nicely value contemplating as a part of a balanced portfolio of 15-20 shares, however not risk-free.

Investing at all times comes with uncertainty, however FTSE 100 dividend shares have traditionally confirmed to be resilient wealth builders. And by specializing in corporations with sturdy money flows, strong dividend data, and cheap valuations, an investor may set up a sustainable second revenue stream.

They need to deal with their £2k as the beginning. The journey to constructing wealth through dividend shares is to start as early as potential and stick at it. Beginning in March, possibly?