The cost of living has been rising for a while. Granted I’m financially comfortable, but I have a marriage, another child, and mortgage on the way. I need a second income right now. Gen Z and Millennials love incorporating side hustles into their lives. The only difference with me is that my side hustle is to let markets or investment managers do the work for me.
A lifetime of passive income
As I still have (hopefully) more years in the tank than I’ve lived, I often opt for growth investments. But life has become more expensive. Thus, my dependency on my portfolio to generate additional income has grown.
Dividend stocks and equity income funds specialise in distributing regular income to investors. But the yields can be volatile depending on the economic environment.
So, for a durable and consistent second income, I could look no further than dividend heroes. These stocks exist to provide a lifetime of growing income for shareholders.
Take the City of London Investment Trust. It has been paying and growing dividends consistently for 56 years. I’m 33 years old, so generating income for longer than I’ve been around is impressive in my book.
Fledging ‘second income’ heroes
Officially, dividend heroes are stocks that have historically increased dividends every year for at least 25 consecutive years. But rather than just investing in one of many established dividend heroes, I’m hunting down those that could turn into the next generation of stars, especially among investment trusts. The up-and-comers list is a specific grouping, overseen by the Association of Investment Companies (AIC). It covers trusts that have increased dividends for at least 10 years, but less than 20. There’s no guarantee these trusts will make it to dividend hero status, but all are well on their way.
My eyes are on the Henderson High Income Trust (LSE:HHI). This does exactly what it says on the tin. It invests in quality companies, both large and small, to deliver high dividend income and capital growth. It has consistently raised its dividends each year for the last decade. Within this period, it has wildly outperformed its benchmarks. It has a 6% dividend yield. This is already high — and to think it could continue to grow for the next 40 years at least certainly whets my appetite.
However, by purchasing some of its stock, I’d face higher charges than with its peers. In addition, the portfolio has a high level of borrowing. With interest rates higher than usual, the portfolio could be under pressure. Higher gearing also implies amplified losses for the underlying portfolio if things turn sour.
Investing on the side
Side hustles are admirable, but I’m after something that takes up less of my time.
Henderson High Income Trust is some way away from dividend hero status. It has another 15 years of growing dividends to reach this mark.
Nevertheless, I think this trust has the makings of a second income that can grow and last a lifetime. I just need to do more digging to ensure this is the most suitable lifetime commitment for me. Did I mention earlier that I was due to get married?
