How much can someone earn who has free funds and uses them idly? For example, if they used it to buy dividend stocks, what second income might be a realistic goal for them?

The answer depends on how lucrative their investment choices are and what time frame they are willing to accept. When it comes to investing, being patient can often be much more profitable than rushing.

Let’s assume someone has a spare 9,000. pounds. This is what they could make by buying dividend stocks and holding them for the long term.

Following some basic rules of good investing

9 thousand pounds is enough to diversify into several different actions. This matters because as an investor, putting all your eggs in one basket can be a huge mistake. Dividends can always be cut.

I believe in long-term investing, and the idea of ​​building a second source of income helps illustrate why.

If someone invests PLN 9,000 today. pounds at a rate of return of 6%, he could start earning £540 a year in dividends. That’s £45 a month. However, if they are patient and reinvest the dividends, the portfolio should be worth over $16,000 in ten years. pounds.

Doing this for a total of 25 years, it should be worth over $38,000. pounds. At a yield of 6% this would mean an average monthly income of £193.

Choosing the right way to invest

With the deadline for making your annual ISA contribution approaching this weekend, it seems like the perfect time for someone with some spare cash sitting around to think about what else they could do with it!

A stocks and shares ISA can be a tax-efficient way to generate a second income.

However, there are other options that can also be used to buy and hold dividend stocks, such as a stock trading account.

Please note that tax treatment depends on each client’s individual situation and may change in the future. The content of this article is for informational purposes only. It is not intended to be and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Long-term income generator?

One stock that investors should consider for its dividend potential is FTSE100 cigarette manufacturer British-American tobacco (LSE: BATS).

While past performance is not necessarily indicative of what to expect in the future, the British-American company has increased its dividend per share annually for decades and plans to augment it each year.

These achievements interest me partly because they show how profitable the business of making and selling cigarettes can be.

However, this is changing. Cigarette sales volume shows a structural decline.

Global cigarette volumes are expected to decline by 2% this year. Last year, a much greater decline was recorded at British American, which moved 8% fewer cigarettes than the previous year.

Some investors avoid tobacco stocks for ethical reasons. Even for those who don’t, the sinking trend in cigarette volumes is concerning and poses a threat to the dividend.

However, the company’s portfolio of premium brands gives it pricing power to try to alleviate sinking sales volumes. It has been struggling with sinking sales volumes in some markets for decades, as has a well-developed manual.

Moreover, British American has expanded its non-cigarette business. This could assist drive future growth.

A 5.7% dividend yield coupled with proven business strength means I think investors should consider this stock.