Millions of people across the UK now run side hustles, generating an average of £872 a month, according to research from Finder.com.
The obvious drawback is that side hustle income requires active effort, meaning you only earn while you are awake and working.
Investing in dividend-paying FTSE 100 and FTSE 250 shares offers a compelling alternative, one that many newcomers to investing tend to overlook entirely.
Many beginner investors view the stock market purely as a vehicle for capital gains, but regular dividend payments represent an equally powerful and often underappreciated source of returns.
The average dividend yield on the FTSE 100 currently sits at around 3%, and when combined with share price growth and dividend reinvestment, the compounding effect can be substantial over time.
Reinvesting dividends to purchase additional shares creates a virtuous cycle, where those extra shares generate more dividends, which in turn fund the purchase of even more shares.
Holding dividend-paying shares inside a Stocks and Shares ISA means every penny of income is completely tax-free, a significant advantage over side hustle earnings, where income above £1,000 a year must be declared to HMRC.
To generate £872 a month in passive income at an average 4% dividend yield, an investor would need a portfolio worth roughly £261,600, which sounds daunting but is achievable through consistent long-term investing.
Investing £200 a month over 30 years could build a portfolio worth approximately £294,000, assuming an average annual return of 8%, putting that income target well within reach.
Targeting individual high-yield stocks rather than simply tracking the index can help investors reach their goals faster by pushing their average yield well above the FTSE 100 benchmark.
Banking group Investec (LSE: INVP) is one such stock, having recently rejoined the FTSE 100 blue-chip index after its shares surged 145% over the last five years.
Investec has successfully transformed itself from a specialist lender into a broader bank with a growing wealth management business, with annual profits climbing from £687m in 2022 to £951m in its 2026 full-year results.
The trailing dividend yield stands at an impressive 5.84%, while the shares trade at a price-to-earnings ratio of just 7.8, roughly half the FTSE 100 average.
Investors should be aware that around half of Investec’s profits come from South Africa, exposing results to currency fluctuations given the group reports its earnings in sterling.
Like other banks, Investec has benefited from the higher interest rate environment, and any meaningful fall in rates could put pressure on lending margins and ultimately weigh on dividend capacity.
After such a strong multi-year run, the shares may consolidate in the near term, but at current valuations they still appear worth considering as part of a diversified, long-term passive income portfolio.
