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He FTSE 100 fell again last week, so UK dividend stocks are now offering even more dizzying returns than before, and I plan to make the most of it.
I think this is a brilliant time to buy LSE income shares. Every time stock prices fall, returns automatically increase. This is because yields are calculated by dividing a company’s dividend per share by its share price. The lower the share price, the higher the return. A quick count shows that 10 companies are now yielding 8% or more, three of which have double-digit returns.
Some investors are moving away from stocks to take advantage of rising yields on government bonds, such as British Treasuries or U.S. Treasuries. Ten-year bonds now yield an attractive 4.65%, with room for capital growth if bond prices rise. However, I’m still not tempted.
I like my chips blue
I prefer to buy a range of UK dividend stocks within a stocks and shares ISA, for tax-free income and (hopefully) growth.
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If you have any questions about this, a quick look at the wealth manager M>he sizzling 10.14% yield would strengthen my resolve. I’m normally wary of double-digit returns, but this one looks sustainable. M&G share price ought recover when the markets come back to life, as they always do in the end.
The same could apply to FTSE 100 insurers Phoenix group holdings and Legal and General Group, which show a dizzying 11.4% and 9.3% respectively. Try to get that income rate from a bond.
Capital is at risk when buying shares. Phoenix and L&G are down 17.42% and 9.4% in 12 months. However, I see it as a buying opportunity rather than a threat as they are now very cheap and trade at 5.5 and 5.4 times earnings respectively.
Naturally, it would be safer to deposit my money in the bank. Savings interest of 6% per year is still possible, as long as I’m willing to keep my money for 12 months. It’s tempting, but the downside is that after a year, interest will fade. By then, best buy deals are likely to be well below 6%.
good time to buy
That’s not a problem if I buy UK dividend stocks. I can access my money at any time, although in practice I would have no intention of doing so. My goal would be to hold all shares for a minimum of 10 years, to allow my dividends time to accumulate and to give their share prices plenty of opportunity to recover. The money deposited gives me a return but not capital growth. stocks should do both.
The opposite happens with gold. Its price may rise, but the yellow metal will never bring me a cent of income. The higher the dividend yields, the higher the opportunity cost of buying and holding gold.
To be fair to gold, the price is up 19.37% over the last year. It’s always worth having some exposure, but no more than 5% of my portfolio. I am investing most of it in FTSE 100 income shares. With Rio Tinto, imperial marks, Barratt Developments, British American Tobacco and Taylor Wimpey all yielding over 8%, now seems like a good time to consider buying them.
