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Earning a second income sounds like hard work – but it doesn’t have to be. In fact, it’s possible to build one simply by investing in dividend-paying shares inside a Stocks and Shares ISA.
One of the best things about this approach is that it can generate passive income, money that rolls in without lifting a finger. FTSE 100 companies do the heavy lifting, investors sit back and enjoy the results. All free of tax thanks to the ISA wrapper.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Here’s how my strategy would pan out. Let’s say an investor puts this year’s full £20,000 ISA allowance into a basket of FTSE 100 dividend shares.
Targeting FTSE 100 dividend stocks
With careful stock picking, they could deliver an average dividend yield of around 7%. If they did that, they could be looking at £1,400 in income over the next 12 months. Any share price growth will be on top of that, but obviously, there’s a danger the original capital may shrink in today’s volatile markets.
One dividend stock I think’s worth considering is Land Securities Group (LSE: LAND), one of the UK’s biggest real estate investment trusts (REITs).
Its shares have had a rough time lately, down 5.5% in the last week and almost 20% over the past year.
A mix of trends has worked against it — the shift to remote working has hit demand for office space while high street retail continues to struggle due to the cost-of-living squeeze and march of online shopping.
But Landsec’s adapting. It’s pivoting towards residential property, with plans to build a £2bn platform in the years ahead. At the same time, it’s scaling back new office developments to free up capital, and targeting stronger rental income from its £3bn retail arm, which includes successful retail and leisure destinations like Liverpool One.
In February, the company reaffirmed its aim to grow earnings per share (EPS) by 20% by 2030, supported by portfolio reshuffles and cost cutting. It also announced that dividends will now be paid twice a year, making things a bit more predictable for investors.
Check shareholder payouts are sustainable
Landsec currently offers a juicy trailing dividend yield of 8.01%. That’s very attractive, and the shares look decent value with a price-to-earnings ratio just above 10.
But as with everything right now, these numbers should be treated cautiously. The wider uncertainty caused by Trump’s tariffs could drag on earnings, by knocking business confidence and consumer spending.
As with any dividend, whether those payouts hold up depends on what comes next. Retailers are struggling and now have to absorb April’s employer’s National Insurance hike, along with an increased Minimum Wage. This could hit Landsec’s rental income. Struggling companies could also cut back on office space. House prices could dip, hitting the group’s residential venture. We are in uncharted waters today.
Landsec’s ambitious EPS growth target was set before Trumpian volatility, and maybe harder to deliver today. That’s why I’d spread this year’s ISA across several different shares. That way, if one falters, others might help smooth out the bumps.
Markets are likely to stay choppy for a while. But reinvested dividend income can scoop up more shares at today’s lower prices and, with luck, keep that second income growing over time. Not just in 2025, but 2026, 2027 and beyond…
