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I do like a high yield. Most of the stocks in my portfolio are from the FTSE 100, as companies listed on the index pay some of the most generous dividends in the world.
I like dividends because they steadily compound over time and come on top of any share price growth. Today, I reinvest all of my shareholder payouts straight back into my portfolio to build my wealth and will draw them as income when I retire.
Yields are particularly high today as equities fall due to fears over inflation and the Israel-Hamas conflict. Just look at these.
Great days for income seekers
Aviva and Anglo American now yield around 7.8%. Imperial Brands, St James’s Place, Barratt Developments and Taylor Wimpey all yield more than 8%. Insurer Phoenix Group Holdings smashes the lot by yielding 11.4%, the highest on the entire FTSE 100.
These are far higher than the yields available on the vast majority of buy-to-let properties, which average just 4.75% nationally.
There are other benefits to generating income from shares rather than a rental property. Equities are much quicker and cheaper to buy and sell, and the stamp duty charge is lower, too. Also, they don’t require refurbishment and ongoing maintenance, and there’s none of the effort of finding tenants and replacing them.
Buy-to-let investing will tempt some as house prices fall and rentals soar. Now could be a good entry point and there’s always a valuable property to sell if one decided to stop being a landlord. However, today’s high mortgage rates will eat into any gains. Plus there’s uncertainty over future legislation as the rental market becomes a political battleground. Shares are so much less worry.
I’d also much rather buy shares than cryptocurrencies like Bitcoin, which do not pay any income and are super volatile. I actually think crypto prices could rally next year, once interest rates peak, so there’s potentially money to be made. But it still feels too much like gambling like to me, so I’m leaving well alone.
Gone shopping for shares
Some think there’s an element of gambling to buying shares too, even solid dividend-paying blue-chips like those I favour. Those juicy dividends can always be cut if the company can’t generate sufficient cash flows to fund them. In a stock market crash, good companies can sell off with the bad.
I reduce the risk by investing in a balanced portfolio of around 15 to 20 different dividend stocks, across different sectors of the market. As a rule, I buy with a minimum 10-year view, to give my dividends time to compound and grow. I also target companies with a strong track record of rising profits and dividend hikes.
Best of all, I love buying high-yielding dividend stocks while they are cheap, as so many are today. Last month I bought Taylor Wimpey, which trades at 5.6 times earnings and yields 8.97%. I also bought Legal & General Group, which is valued at 5.4 times earnings and yields income of a staggering 9.3%. Try getting that much income from a buy-to-let!
I suspect we’re set for further stock market volatility in the weeks ahead, but that doesn’t worry me because I’m holding for years. Instead, I’ll take advantage of any further dips to lock in even higher, juicier yields
