Growing numbers of Britons have second jobs or side hustles. But it’s possible to get a secondary source of income, and with a lot less effort, by investing in a spread of FTSE 100 shares. UK blue-chip stocks pay some of the most generous dividends in the world. It’s passive income, and it can really build up over time.

How can I use stocks to boost my spending power?

Time is the key word here. While you can generate dividend income almost from day one, by purchasing a top dividend income stock, it takes time to grow into something really worth having.

Let’s say someone’s aiming for an income of £14,713 a year. I’ve chosen that number, because it’s the average wage from a UK part-time job. How much investors need in their ISA to earn it depends on the overall yield.

While the FTSE 100 has an average yield of 3.3%, it’s possible to get as much as 5%, 6% or 7% from a spread of more generous dividend stocks. The higher the yield, the less money you need to hit that second income target.

• 5% – £294,260
• 6% – £245,217
• 7% – £210,186

So how long does it take to generate the middle of those three figures – £245,217? Let’s assume someone has a timeline of 30 years. Which may seem lengthy, but that’s how investment wealth is built. Slowly, over time.

If they tuck away £175 a month, and their portfolio grew at an average rate of 8% a year, they’d have £256,926. Ideally they should invest more, as inflation will erode its real value over time. But where to start?

Is this dividend stock worth buying today?

I’ve just added this top income stock to my own portfolio: NatWest Group (LSE NWG). Its forecast to yield a stunning 6.4% this year. The forward yield for 2027 is nearly 7.2%.

The NatWest share price has had a stunning run. It’s up 198% over the last five years, with dividends on top. However, the shares have been volatile lately, as investors fret over both the Iran war and political shenanigans at Westminster.

On 1 May, NatWest reported a healthy 12% increase in first quarter profits and raised its income guidance for 2026. That wasn’t enough to calm investors. Markets are worried about threats such as loan impairments, windfall taxes, rising mortgage rates and the potential for a recession or even stock market crash.

We live in uncertain times, but I think the risks here are more than offset by NatWest’s incredibly low forward price-to-earnings ratio of just 7.9. I think it’s one of the most compelling income and growth opportunities on the FTSE 100 right now. I’ll be watching the stock carefully to see how it weathers current storms, while reinvesting every dividend I receive to build up my stake over time, and generate even more income one day.

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That’s currently the national average full-time salary, and adds up to £39,884 a year. That’s a handy sum to have in retirement, on top of the State Pension and any other income sources. How can you generate that?

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.

A popular choice for long-term Stocks and Shares ISA investors is to build a diversified spread of FTSE 100 shares offering both dividend income and growth. But how much would it actually take to generate that level of income? The answer depends heavily on the portfolio’s yield. 

How much capital do I need?

• 4% – £997,000.
• 5% – £797,680.
• 6% – £664,733.

That’s not the kind of money you can build overnight. It demands investing regularly every month and sticking with it for decades, while re-investing every dividend you receive to let compounding do its work. The next question is this, which shares can help drive that growth and income? 

A stock I think investors might consider is FTSE 100-listed bank NatWest Group (LSE: NWG). The NatWest share price has had a terrific run, shaking off lingering memories of the financial crisis to climb 199% over five years. It’s been caught up in recent volatility though, falling more than 5% in the last month.

On 1 May, NatWest also posted a 12% rise in first-quarter profits and lifted 2026 income guidance. I thought the results were pretty good, but markets had hoped for more. They were also wary of a potential £140m impairment linked to Iran exposure. The shares fell more than 5% on the day. I bought them.

NatWest’s heavily tied to the UK economy, and if economic growth slows, loan impairments could rise while mortgage activity weakens. Like all of the big FTSE 100 banks, it also faces competition from smaller but nimbler ‘challenger’ banks.

NatWest has a really eye-catching dividend

I thought NatWest shares were too cheap to resist. And I still do. Today, the forward price-to-earnings ratio is just 8.2. By comparison, the average FTSE 100 P/E is around 15. But here’s the big attraction.

NatWest’s a top income stock. It currently has a bumper forward yield of around 6.2%, which is forecast to hit nearly 7% in 2027. I think that’s stunning. Investors can underrate the impact of reinvested dividends. Over time, they can make up roughly half of an investor’s total return.

When they’re this big, it could be even more. Dividends are never guaranteed, of course. The board is also running a £750m share buyback, further boosting shareholder returns.

Investors should look to build a balanced portfolio of around 15 stocks. Passive income seekers they might want to focus on more generous yielders like NatWest. I can see plenty more high-yield dividend heroes out there today.

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3 reasons why I like FTSE 100 banks today

• They’re making big money. None more so than Asia-focused HSBC Holdings. It made a massive $32.3bn profit in 2024, and while that dipped to $29.9bn last year, it’s still an awful lot.
• Shareholders are being rewarded. UK banks are generating plenty of cash, with the big five returning more than £31bn in dividends and £14.1bn in share buybacks in 2025 alone.
• They still look good value. Despite their strong share price growth, FTSE 100 banks boast low forward price-to-earnings (P/E) ratios. Barclays has a forward P/E of around 8.6, well below today’s FTSE 100 average of 14.5.

3 reasons why they worry me

• The world’s on edge. The rising oil price risks pulling us into a global recession. The banks won’t escape the fallout, hitting demand for loans and driving up debt impairments.
• Shadow banking threat. HSBC and Barclays have taken big hits from their exposure to London-based shadow bank Market Financial Solutions, which collapsed in February amid allegations of fraud. HSBC lost £295m, Barclays £228m. There could be more shadowy threats out there.
• Interest rate risk. Banks do well when interest rates rise, because this allows them to widen their margins. Rates looks set to rise again as inflation returns, but when the cycle turns, profits will shrink.

There are always short-term risks. But I’m looking to build a portfolio of dividend growth stocks for retirement. Any stock I buy today, I hope to hold for at least 20 or 30 years. Today’s low P/Es offer another safety net.

Here’s why I bought NatWest shares

I already hold Lloyds, so that was off my shopping list on diversification grounds. I was tempted by Barclays, but worried about its shadow banking exposure. Then last Friday (1 May), NatWest (LSE: NWG) shares plunged almost 4.5%, and I swooped.

NatWest posted a 12% increase in Q1 profits and raised 2026 income guidance, but that wasn’t enough. Markets had hoped for more, and feared revenue growth might prove shaky. They were also spooked by a potential £140m impairment charge, due to Iran. I dismissed those as short-term issues, and pounced. Frankly, how could I resist?

I was bagging a top bank with a dirt cheap forward P/E of just 7.7. Following the one-day dip, the forecast yield had climbed to 6.57%. That’s expected to hit 7.39% next year. It’s a stunning rate of income, if not guaranteed.

My biggest concern is that NatWest has a very similar risk profile to Lloyds. Both are heavily exposed to the UK economy, which isn’t exactly thriving. Yesterday (5 May) I balanced that by buying another cut-price FTSE 100 bank, this time one with global exposure. Under The Motley Fool trading rules I can’t say what it is for a couple more days. But I think it’s just as exciting as NatWest.

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Its latest updates have shown steadily rising earnings, a stronger balance sheet, and increasingly generous returns to shareholders. And all while the shares continue to trade at a hefty discount to their long‑term fundamentals.

So, following its latest Q1 numbers, is now the moment for me to snap up more of the stock while it still looks cheap?

How do the growth drivers look?

A risk to NatWest’s growth momentum is increased competition in its key mortgages and deposits operations, which could squeeze its margins. Another is any worsening in the UK’s economy that could increase defaults on lending, increasing impairment charges.

Nonetheless, analysts forecast its earnings will grow by an average 4.6% a year over the medium term at least. This looks well supported to me by its Q1 2026 figures released on 1 May, if not a significant underestimate.

Total income jumped 9.5% year on year to £4.36bn, helping boost profit before impairment losses 15.7% to £2.32bn. The figures underline the continued benefit of deposit‑margin expansion and lending balance growth, which are set to remain key earnings drivers.

Operating profit before tax surged 12.2% to £2.03bn, highlighting strong deposit margin expansion and broad‑based lending growth. And earnings per share soared 15.5% to 17.9p, reflecting robust capital generation and balance‑sheet strength.

Together, these trends show NatWest entering 2026 with firm momentum behind it and further earnings growth ahead.

What does this mean for the valuation?

A share’s price reflects whatever number buyers and sellers are willing to agree on at a given moment. But its value is determined by the underlying strength and prospects of the business itself.

Over time, market prices tend to move back toward a company’s true worth (‘fair value’). This is why being able to quantify this gap is crucial for long-term investors’ profits.  

Discounted cash flow (DCF) analysis determines what a stock is truly worth by forecasting future cash flows and discounting them back to today’s value. When those forecasts are less certain, investors demand higher returns, which increases the discount applied.

Differing assumptions mean analysts’ DCF outcomes can vary. Using my own approach — including an 8.3% discount rate — NatWest looks 57% undervalued at its current £5.45 price.

That implies a fair value of £12.67 — more than double the present level. If markets continue to correct this price-to-value gap over time, this could be an excellent opportunity if those DCF assumptions hold.

My investment view

NatWest looks extremely well placed to me to generate the earnings growth needed to drive a meaningful rise in its share price over time.

Analysts also expect the dividend to keep rising, with forecast yields reaching 7% next year and 7.6% in 2028. These are more than double the current FTSE 100 average of 3.1%. And this constitutes a powerful income component to add to the valuation case for investment.

It is more than enough to cause me to buy more at the earliest opportunity. And I also have my eye on other very underpriced, high-yield stocks in other sectors too.

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Whether an investor is 30, 40, 50, or older, a Self-Invested Personal Pension is a brilliant way to build a pot of passive income for when they stop working. It complements a Stock and Shares ISA nicely, because the tax breaks come at the beginning, in the shape of upfront tax relief on contributions. With an ISA, they come at the end, as tax-free returns.

Brilliant pension tax breaks upfront

Each £100 that goes into a SIPP only costs a basic rate taxpayer £80 after tax relief, falling to just £60 for a higher rate taxpayer. Withdrawals in retirement are taxable, but 25% can be taken tax-free.

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.

Today, the new State Pension pays a maximum £12,547.60 a year. So what would a SIPP investor need to double that, and generate a second income of £25,095.20?

Let’s assume they invest in a spread of FTSE 100 and FTSE 250 shares that pay generous dividends, and get a 5% yield from their SIPP. In that scenario, they’d need £501,904. If they took 7% of their portfolio as income instead, which might involve dipping into the capital, they’d get the same income from £358,500.

Building wealth like that takes time, but tax relief makes it easier. Either way, there’s no time to lose.

Today looks like a terrific time to buy FTSE 100 shares, with the market knocked back by volatility in the Middle East. Top stocks are now trading at notably lower valuations.

I think NatWest shares look fabulous value

NatWest (LSE: NWG) shares have fallen more than 14% in the last month. Despite that slip, they’re still up 165% over the last five years. That would’ve turned a £10,000 investment into £26,500. Or comfortably over £30,000 with dividends reinvested.

Like all the big banks, NatWest has been making bumper profits due to higher interest rates, which have boosted margins between what they pay savers and charge borrowers. In 2025, operating profit before tax jumped 24.4% to £7.7bn. That stellar number was reported on 13 February. Two weeks later, the Iran war kicked off. NatWest fell back but now looks stunning value, with a price-to-earnings ratio of just 8.85. I struggle to believe that such a profitable enterprise could offer that much value. Especially since it offers a bumper trailing yield of 5.65%. What’s going on here?

No stock is without risk. It’s a UK-focused bank, and our economy isn’t in the best of health. That could hit demand for mortgages and drive up bad loans. Even so, I think NatWest looks a compelling opportunity to consider.

If the Iran conflict drags on, the shares could get even cheaper but frankly, I think they look terrific value today. The only thing stopping me is that that my SIPP already holds a big position in rival FTSE 100 bank Lloyds, which has a similar UK focus. That’s not a problem, because I can see plenty more terrific bargains out there today.

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Actually, despite strong profits and aggressive buybacks, the shares continue to trade at a discount to their underlying earnings power. And the bank has a whopping forecast dividend yield of 7.1%.

That combination of income strength and mispricing makes NatWest a compelling candidate for long‑term investors, in my view.

So, how much could be made here?

Double my money?

Discounted cash flow analysis is the best way I have found to work out where any stocks should be priced. It achieves this using forecast cash flows of the underlying business and then discounting them back to today.

Various inputs into the formula vary from analyst to analyst. But my calculations (including a discount rate of 8.3%) show NatWest is a stunning 51% undervalued at its current £6.27 price.

Therefore, the ‘fair value’ of the stock could be around £12.80 — more than double where it trades now.

Crucial for long-term investors to note here is that share prices typically gravitate towards their fair value in the long run. So this price-value gap suggests a potentially terrific buying opportunity to consider today if these calculations prove accurate.

Dividend bonanza?

Analysts expect NatWest’s dividend yield to rise to 5.8% this year, 6.5% next year and 7.1% in 2028, though payouts can fall as well as rise. By comparison, the FTSE 100’s present average is only 3.1%.

So, a £20,000 holding in the bank (the same as mine) would make £20,595 after 10 years and £147,244 after 30 years. This is based on the 7.1% forecast as an average and on the dividends being reinvested back into the stock (‘dividend compounding’).

Including the original £20,000 investment, the holding’s total value would be £167,244 by then.

And this would deliver an annual income of £11,874!

How’s the core business look?

A risk here is increasing competition that may squeeze NatWest’s margins. Another is any surge in the cost of living that may worsen its loan book.

However, analysts forecast that its earnings will grow by a solid annual average of 4.2% a year over the medium term at minimum. And it is growth here that supports both share price and dividend gains over the long run.

Indeed, its latest (annual 2025) results suggest they may grow a lot more than that, in my view. Operating profit before tax soared 24.2% year on year to £7.7bn, while income jumped 12.3% to £16.4bn.

My investment view

Taken together, the rising earnings, hefty dividends, and deep valuation gap paint a far more attractive picture than many in the markets may realise.

Over time, as earnings grow, the price-to-valuation gap should close. And in the meantime, investors should continue to be paid handsomely in dividends to wait. 

I will certainly be adding to my holding in the stock soon. And I believe the shares are well worth considering — even for investors as sceptical as Super Hans.

The post A 7.1% forecast yield and 51% below ‘fair value’! 1 of my top FTSE stocks to buy right now appeared first on The Twelfth Magpie.

From April 6, the full new state pension is worth £12,547.60 a year. It’s a useful foundation, but it won’t stretch far (and many pensioners won’t even get that much). Research from the Retirement Living Standards shows a single person needs £13,400 just to enjoy the bare minimum retirement lifestyle. They need £31,700 for a moderate one and £43,900 to be comfortable.

That’s why it’s vital to build additional income where possible. Workplace pensions help, for those lucky enough to get one. The Stocks and Shares ISA offers another great way of building wealth. Every adult can use their £20,000 contribution limit to tuck away up to that amount a year, with all growth and dividends free of tax for life.

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.

Building the pot

Let’s say an investor aims to generate a second income worth double the new State Pension of £25,095 a year. Combined with the pension, that delivers a total income of £37,642, more than enough for a ‘moderate’ retirement.

Investing £5,000 a year over 30 years, with annual returns averaging 7%, would build an ISA portfolio worth £505,365. Spread across a range of FTSE 100 shares yielding 5%, that pot could generate annual income of £25,268.

That’s a simplified illustration and not without its flaws. Inflation will erode the spending power of that ISA pot over the decades, while the State Pension should hopefully rise a lot higher. Even so, it shows how steady investing and compounding can transform modest contributions into a meaningful income stream.

NatWest pays lots of dividend income

I can see a host of tempting dividend income stocks on the FTSE 100 today. One that stands out is NatWest Group (LSE: NWG). Its shares have had a stunning run lately, rising 47% over the last year and 185% over five. The board has paid generous dividends on top. Reinvesting shareholder payouts can turbocharge the long-term total return. Dividends can then be drawn as a regular income in retirement.

NatWest remains closely tied to the UK economy, and that brings risks. Slower growth and rising costs could increase business and customer loan impairments. If we slip into stagflation or recession, that could hit profits too.

Yet the shares look good value with a modest price-to-earnings ratio of 8.9. The trailing yield is a thumping 5.32%, and with luck there’s more income to come. Forecasts suggest a yield of 5.88% over the next year, rising to 6.59% in 2027. After such a strong run, the shares may slow from here, but I think NatWest is still worth considering for income-focused investors.

Diversify across the FTSE 100

Investors shouldn’t bet their retirement income on a single stock. Diversification is essential, spreading exposure across sectors and income sources. Following recent volatility, I can see plenty of established names across the FTSE 100 and FTSE 250 offering attractive yields at modest valuations. The income they pay should be a brilliant supplement to the basic State Pension.

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A super pension boost

ISA contributions come from taxed income, but all growth and income is free from HMRC’s attentions. SIPPs work differently. Contributions attract upfront tax relief, giving an immediate uplift, but after taking the 25% tax-free lump sum, further withdrawals may be taxable.

That tax relief is tempting. Investors can tuck away up to £60,000 a year, depending on their income, and contributions are instantly boosted with 20% basic rate tax relief, lifting that to £72,000. Higher rate taxpayers can claim a further 20% or 25% via their tax return.

Unused allowances from the previous three years can be carried forward. In theory, that means up to £240,000 could be invested in one go, with tax relief on top.

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.

Few will have that kind of spare cash. But steadily building a SIPP year after year, alongside an ISA to balance the tax treatment, can still produce retirement-changing results.

Building a serious pot

Let’s say somebody invests £750 a month, which adds up to £9,000 a year, for 30 years. If their pot grows at an average compound rate of 8% a year, they’d end up with £1.1m. Remember, that £750 monthly contribution effectively costs a higher-rate taxpayer just £450, after tax relief.

Reaching seven figures demands discipline, patience and the willingness to ride out market volatility. I’d aim to build that wealth via a balanced portfolio of mostly FTSE 100 shares.

One name that stands out to me is NatWest Group (LSE: NWG). Its enjoyed a strong run, up 25% over the past year and an impressive 170% over five. That’s a dramatic turnaround for a bank almost crushed by the financial crisis.

NatWest is back in full private ownership, and chief executive Paul Thwaite is focused on sharpening its core UK banking operations, improving digital services and keeping a tight grip on costs. Higher interest rates have lifted net interest margins and profits across the sector. In 2025, NatWest’s pre-tax profits climbed 24.4% to £7.7bn.

A great income stock

Many expected rate cuts to squeeze those margins this year. Now the Iran war and potential energy shock looks set to drive inflation and interest rates back up. That may support profitability, but could curb borrowing and drive up loan impairments. We could see fresh calls for a bigger windfall tax on the banks.

Even so, much of this looks reflected in the low valuation. The shares trade on a price-to-earnings ratio of under 8.5, and the trailing yield sits at a thumping 5.65%. Investors might consider buying with a long-term view. Further volatility in the days ahead may offer an even better entry point.

Not everyone will build a £1m retirement fund, but it’s an exciting number to aim for. And I can see plenty more cheap, high-yielding FTSE 100 stocks worth considering right now.

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There’s a positive though. All three are cheaper as a result, and yield more. Time to consider buying them?

Last month was tough for the FTSE 100 as a whole. The UK’s blue-chip index fell into correction territory, defined as a drop of more than 10%. There’s no way banks were going to escape the turmoil.

NatWest and Lloyds are heavily exposed to the UK, which offers little protection right now. The OECD has warned Britain could be the worst hit major economy. Barclays has a broader international footprint, thanks to its US corporate and investment banking operations, and Middle East expansion plans. That diversification adds excitement, but widens the risks.

Volatile FTSE 100 sector

If the crisis drags on, higher interest rates could squeeze households and businesses, pushing up bad debts. Mortgage costs may rise too, hitting demand and slowing activity across the housing market.

There’s a positive angle too. All three have benefited from higher interest rates in recent years, which boosted net interest margins, the gap between what they pay savers and charge borrowers.

That was expected to fade as inflation dropped towards 2%, allowing the Bank of England to cut base rates. This seems unlikely now. Rising oil and gas prices could push inflation back towards 4%, delaying cuts and extending that margin boost.

There’s another advantage. The recent sell-off has made all three banks cheaper on a price-to-earnings basis. Barclays trades on just 9.1 times earnings, well below the FTSE 100 average of around 17. NatWest looks even cheaper on 7.9, while Lloyds is pricier at 13.3.

Dividend yields have climbed as share prices have fallen. Barclays has a trailing dividend yield of 2.25%. That’s the lowest of the three, although it prefers to return cash via share buybacks. NatWest offers a meaty 6% yield, while the trailing Lloyds’ yield has crept back above 4%.

Low P/Es, high yields

Forecasts suggest more growth to come. NatWest’s yield is tipped to hit 6.57% in 2026 and then climb to 7.39% in 2027. Lloyds is expected to yield 4.7% and 5.56% respectively. Even Barclays is forecast to pay income of 3.75% in 2026, rising to 4.51% in 2027. These aren’t guaranteed and could be cut if the crisis intensifies.

The share price forecasts are even more eye-catching. Analysts see Barclays hitting 539p within a year, a potential gain of more than 40%. NatWest has a target of 738p, up almost 37%. Lloyds is forecast to reach just over 118p, a rise of around 31%.

These are striking numbers, but they’re only forecasts. Also, most of them are likely to have been made before the Iran conflict, so they don’t reflect today’s share price drops, or increased risks.

Personally, I think all three banks look terrific value and worth considering with a long-term view. Buying today takes nerve though. A sensible approach might be to drip feed money in over several weeks. If they fall further, consider buying more.

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No, the ISA deadline is simply the last day we can contribute cash up to the 2025-26 annual limit of £20,000. Then once it’s in our accounts, we can take our time to decide what we want to buy with it. There’s no deadline on making our actual investment decisions

But we might be able to get some guidance by seeing what people have been buying in March. And the latest update from interactive investor shows a few of my favourite stocks among the 10 most popular. Two of them are on my shortlist, and their share prices have had very different five-year journeys.

Bank on a rebound

NatWest Group (LSE: NWG) is one, up 150% over the past five years. But at the time of writing, NatWest shares are down 23% since their 52-week high in early February. So while the FTSE 100 itself might not have crashed — that means a fall of 20% or more — the NatWest share price has.

It’s Iran, oil, inflation, and all of the rest of the fallouts threatened by the Middle East conflict. Things like that always hit the financial sector, because it underlies just about everything. But to me, the NatWest valuation still looked cheap even after that storming five-year gain, let alone after its recent fall.

NatWest is on a forward price-to-earnings (P/E) ratio of only 7.7 now — around half the Footsie long-term average. And the share price fall has pushed the forecast dividend yield up to 6%.

Now, the dividend isn’t guaranteed. And I can see a volatile time ahead for this one and other financial stocks. But is it one to consider buying on the dips, and holding in a Stocks and Shares ISA for the long term? I think so.

Build for the long term

It would be nice to be able to say Taylor Wimpey (LSE: TW.) is coming down from a strong five-year run too. But the truth is we’ve had year after year of events conspiring against the housebuilding industry. And just when inflation was seriously starting to soften and further interest rate cuts were on the cards… well, fellow builder Bellway perhaps said it best.

With its 24 March results, we heard: “The ongoing conflict in the Middle East heightens the risk of both inflationary cost pressures and an impact to customer demand, and we have already seen volatility return to the mortgage market.”

So, yes, there are some short-term threats, once again, to companies like Taylor Wimpey. But the long-term UK need for new housing isn’t going away… even if it has been stretching even long-term investors’ patience in the past decade and more.

And the — admittedly not guaranteed — forecast dividend yield is up at 8.8% now. Keep taking the cash while waiting for better times? Taylor Wimpey has got to be worth considering too.

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