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I like high performance. Most of the stocks in my portfolio are FTSE 100as the companies listed on the index pay some of the most generous dividends in the world.
I like dividends because they steadily accumulate over time and add to any share price growth. Today, I reinvest all my shareholder payments directly into my portfolio to build my wealth and will earn it as income when I retire.
Yields are particularly high today as stocks fall on fears about inflation and the conflict between Israel and Hamas. Just look at these.
Great days for income seekers.
Aviva and Anglo-American now they yield around 7.8%. Imperial Brands, Santiago Square, Barratt Developments and Taylor Wimpey all yield more than 8%. Insurer Phoenix group holdings crushes the lot with a return of 11.4%, the highest of the entire FTSE 100.
These are much 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 stocks instead of a rental property. Shares are much quicker and cheaper to buy and sell, and the stamp duty charge is lower too. Additionally, they require no renovation or ongoing maintenance, and there is no effort to find and replace tenants.
Buy-to-let investing will tempt some as house prices fall and rents soar. Now could be a good entry point and there will always be a valuable property to sell if one decides to stop owning. However, current high mortgage rates will impact any gains. Additionally, there is uncertainty over future legislation as the rental market becomes a political battleground. The actions are much less worrying.
I also prefer to buy stocks than cryptocurrencies like bitcoin, which do not generate any income and are very volatile. In fact, I think cryptocurrency prices could rise next year once interest rates peak, so there is potentially money to be made. But it still feels too much like a game of chance to me, so I’ll leave it alone.
Gone to buy shares
Some think there is also an element of gambling in buying stocks, even blue-chip stocks that pay solid dividends like the ones I prefer. Those juicy dividends can always be cut if the company can’t generate enough cash flows to fund them. In a stock market crash, good companies can be sold along with bad ones.
I reduce risk by investing in a balanced portfolio of between 15 and 20 stocks with different dividends, in different sectors of the market. As a general rule, I buy with a minimum 10-year outlook, to give my dividends time to compound and grow. I also target companies with a strong track record of growing profits and dividend increases.
Best of all, I love buying high-yield dividend stocks while they’re cheap, like so many are these days. Last month I bought Taylor Wimpey, which trades at 5.6 times earnings and yields 8.97%. I also bought Legal and General Group, which is valued at 5.4 times earnings and generates revenue of a staggering 9.3%. Try making that amount of income by buying to rent!
I suspect we are set for more volatility in the stock market in the coming weeks, but that doesn’t worry me because I will hold the position for years. Instead, I will take advantage of any additional declines to secure even bigger and juicier returns.
