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As a general rule, I prefer to generate the highest possible dividend yield by buying FTSE 100 stocks instead of investing through a fund.
I enjoy the challenge of finding the best stocks and analyzing them to see if they can generate dividend income and capital growth over the long term. I’m not Warren Buffett, but I’ve done pretty well.
I am looking for FTSE 100 income shares
With the FTSE 100 close to its all-time high, I am having a moment. I went on a spree in the fall, when the index was low, and collected Lloyds Banking Group, Khaki, red riverY rolls royce.
While it’s early days, all four have rallied strongly, with Rolls-Royce’s cream of the crop up 30.84% since I bought it on 1 November. For the record, its share price is still down 3.45% in 12 months and 63% in five years. Rolls-Royce is not paying me dividends at the moment, but I am hopeful that they will resume paying out to shareholders this year or next.
I don’t get the same kind of excitement buying a mutual fund, since growth is averaged out across dozens of stocks. However, I am very tempted by a very popular mutual fund that operates in the UK equities sector.
Is named Traders confidence (LSE: MRCH), run by Allianz Global Investors, which has assets under management totaling £837m. The objective of the trust is to provide above average income, income growth and capital growth over the long term by investing primarily in higher performing large UK companies.
It is best known for its proud track record of increasing its annual dividend every year for 40 years. Traders currently offer investors an income yield of 4.37% per annum.
This fund is 95% invested in UK stocks. Top 10 holdings include dividend aristocrats Shell, British american tobacco, GSK, PA, imperial marksY red river. All of these are household names to dumb investors.
I’ll buy my own shares, thank you.
Merchants have benefited from the recent rally in the FTSE 100 and are up 13% in three months. In one year, it is up 8.8% and a somewhat more impressive 58% in five years. As with any investment in the stock market, past performance is not a guarantee of future returns, and those dividends are not guaranteed.
The trust has a low Ongoing Charges (OCF) figure of just 0.59%. It currently trades at a slight premium over NAV, just 0.9%. That’s not unusual for Merchants, which is a premium fund. Investor demand is as strong and consistent as its performance.
Naturally it could lose value if the FTSE 100 falls so now may not be the best time to buy it given the recent strong run. It looks like a great long-term buy and hold though, so what’s stopping me from buying it?
It’s something personal. I like to search for individual stocks to build my own portfolio. After my recent successes, I am going to continue with my direct capital strategy. Investors who want a fund manager to do the work for them may have a different opinion. Here at the Fool, we believe that individual investors are best positioned to take care of their own financial future.
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