The idea of making extra cash with minimal effort outside of work may sound too good to be true. But it’s not. I plan to do it by buying dividend shares.
It’s a method I’ve used for a while now. With the dividends I receive, I reinvest them. This allows me to benefit from compounding, which essentially means I earn interest on my original investment as well as on my extra income.
The UK stock market is a great place to go shopping for these sorts of shares. The average FTSE 100 yield is around 4%. The S&P 500 average, for example, is only around 2%.
I’ve got my eye on two dividend shares for February. Should I have the cash, I’ll be adding them to my portfolio.
Legal & General
I already own Legal & General (LSE: LGEN). Right now, I’m up 15.9%. However, I don’t plan on stopping there.
With a yield of 7.7%, you’d be hard-pressed to find a better dividend share out there. There are only a handful on the FTSE 100 that offer a higher return. That said, I must note here that dividends are never guaranteed.
I think February could be a smart time to buy some L&G shares. It’s posted a strong performance in the last few months. But over the last year, it’s down by around 2%. At 254.6p, I sense a bargain.
In my opinion, Legal & General is in good shape to go on a charge in the upcoming years. Its assets under management have fallen as investors have pulled their cash to keep it safe for a rainy day. But as the economic outlook strengthens and sentiment picks up, as will be the case in the next two to three years, I think the Legal & General share price will be provided a boost.
HSBC
I’m also keen on HSBC (LSE: HSBA). I’ve had the international giant on my watchlist for a while now. I’m hoping to have some investable cash in February to finally buy it.
The stock had a strong 2023. During the year its price jumped by over 20%. I’m confident it can continue to perform going forward.
HSBC looks dirt cheap. It currently trades on just 5.7 times earnings. That’s comfortably below the average of its FTSE 100 peers. Like Legal & General, I can also make some passive income with its meaty 5.4% yield.
The biggest threat to the bank is its exposure to Asia. It’s invested heavily in the region. With ongoing geopolitical tensions as well as issues including a wavering Chinese property market, this could see the stock potentially suffer in the months to come.
However, I think over the years ahead its focus on the region will pay dividends. Within Asia, there are fast-growing exciting economies such as China and India. Recently, HSBC’s Private Bank highlighted how these nations are set to continue benefitting from factors such as a rising middle class. With that in mind, I see HSBC as a smart long-term play.
