$5k to invest buys me 700 shares in these 2 ASX stocks for a second income!

You don't need a lot of money to start a steady flow of cash flowing into your bank account.

| More on:
Woman relaxing on her phone on her couch, symbolising passive income.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A second income is what most investors aim for, but it's probably more straightforward to achieve than many of them realise.

You can start with as little as $5,000.

Let's take a look at a couple of ASX dividend shares that could help with this mission and see how hypothetically you could arrive in the promised land:

The land of plenty

Australia is blessed to host many quality income stocks because of its favourable tax rules.

Two that experts seem to like at the moment are BSP Financial Group Ltd (ASX: BFL) and Whitehaven Coal Ltd (ASX: WHC).

The former is Papua New Guinea's largest bank, which has paid back its investors handsomely in recent years.

IG Australia market analyst Hebe Chen is bullish on the financial stock.

"BSP Financial's gross dividend yield was 9.75% in the past financial year, with its stock price jumping 32% from early last year and 51% over the past two years."

Meanwhile Whitehaven Coal is cashing in on the energy anxiety much of the developed world is feeling due to conflicts in the Middle East and a ban on Russian gas and oil.

The stock is paying out a sensational fully franked dividend yield of 10.6%.

Whitehaven shares have dived this month due to an unfavourable reporting season, but they have remained resilient over the past year while other energy stocks have suffered from high volatility.

Second income now or later?

Going back to the $5,000, if you are impatient you could extract passive income immediately from the above dividend stocks.

If you split that money evenly between the two stocks, you could buy around 710 shares.

For ease of calculation, if we say BSP Financial and Whitehaven Coal average out to 10% yield, that's $500 coming into your bank account each year.

That's pretty handy cash for just a $5,000 investment.

But if you can afford to wait a tad longer, you could try to secure a much more significant second income.

Check this out.

If you can maintain a compound annual growth rate (CAGR) of 10%, which is simply the current dividend yield without even taking any capital growth into account, let the investment grow for 10 years.

Moreover, keep saving and add $400 to the portfolio each month.

You will then find your shares are worth $89,468 by the end of that decade.

If you then start pocketing the annual returns, you have $8,947 in your bank account each year.

Does that sound much better?

That's a nice overseas holiday each year, or paying for the kids' education expenses.

Or in monthly terms, it's $745 of second income, which is almost double the amount you had been saving.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

ETF written on cubes sitting on piles of coins.
ETFs

Own SPDR ASX ETFs? Here is your next dividend and when you'll receive it

State Street Global Advisors announced distribution payment amounts and dates today.

Read more »

A woman wearing yellow smiles and drinks coffee while on laptop.
Dividend Investing

Forget CBA shares and buy these ASX dividend stocks

Analysts think these shares are better buys that CBA right now.

Read more »

A man in his office leans back in his chair with his hands behind his head looking out his window at the city, sitting back and relaxed, confident in his ASX share investments for the long term.
Dividend Investing

3 ASX dividend shares to buy to beat falling interest rates

Analysts think these buy-rated shares could generate great yields.

Read more »

An oil refinery worker stands in front of an oil rig with his arms crossed and a smile on his face as the Woodside share price climbs today
ETFs

This ASX ETF has a 4% dividend yield. Should you buy for income?

There aren't too many ETFs offering more than 4% right now...

Read more »

Australian notes and coins symbolising dividends.
Energy Shares

Tempted by the big dividend yields on ASX energy shares? Here's why you should think again

The income from these stocks might not be as good as it seems.

Read more »

Excited couple celebrating success while looking at smartphone.
Dividend Investing

The best ASX dividend shares to buy in FY26

The team at Bell Potter thinks these shares are among the best to buy in the new financial year.

Read more »

Man holding a calculator with Australian dollar notes, symbolising dividends.
Dividend Investing

These buy-rated ASX dividend shares offer 5% to 7% yields

Here are four options for income investors to consider right now according to analysts.

Read more »

Man smiling at a laptop because of a rising share price.
Dividend Investing

2 must-have ASX shares to buy for dividend income investors

These two stocks offer a lot of what investors may want.

Read more »