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Stocks with high dividend yields are the ones that get my attention. However, when I’m trying to find stocks that can pay me passive income (hopefully) for life, it’s not just performance that I need to focus on. Rather, I am concerned about the dividend history.
Here’s why, along with some of the actions I think check the box.
A proven track record
The best way I can point out the difference in income potential is to illustrate it with two stocks. Stock X has a dividend yield of 4% and has a decade-long history of consecutive dividend payments.
Stock Y has a yield of 6%, which has risen substantially over the last year as the share price has fallen. It has a spotty history of paying dividends, which is high during good times and zero during bad periods.
In the coming decades, what stocks would I like to trust? Although the second company is currently performing 50% higher than the first, I am not convinced that it will be able to earn a reliable income for years to come. Therefore, I would be happy to accept a lower return today, confident that the business has a good track record.
As a side note, I am aware of the risk of predicting future dividends. These are not guaranteed in any way and are dependent on business performance. Even the most trustworthy companies could lower the payment if they hit hard times.
Main actions to consider
Based on the above, the next logical step is to filter for ideal companies with a long history of dividends. there are 18 FTSE 100 actions and 36 FTSE 250 Stocks that have increased dividend payouts consecutively for at least the past decade. From this group, I can identify some good options.
Within the FTSE 250, there are some great investment funds that focus on generating income. Two examples are the Murray Income Trust (4.15% dividend yield) and the City of London Investment Trust (4.74%).
Both have more than two decades of consecutive annual dividend growth. The trusts are primarily focused on investing in companies listed on the LSE.
On the FTSE 100, I like National Network (4.96%) and Unilever (3.66%). Again, both have over a decade of payment history. Not surprisingly, both stocks are well-known, established companies with track records of good performance.
Income today and tomorrow
I can never say for sure that a stock will continue to pay me income for the rest of my working life. But if you had invested in the above four stocks a decade ago, you wouldn’t be sitting here disappointed today. That’s why I’m considering putting some of my money into each stock, to help me enjoy potential future dividends.
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