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My investment strategy places dividend-paying stocks as a core element of my retirement strategy. Passive income means money in my pockets that can help me pay my bills.
The trick that I have learned and that is essential is to choose investments that are not high risk. That's especially important during my old age.
A high dividend yield and a falling share price are worthless to me. It is common to find high dividends and an unstable stock price or a rising stock price and low dividends. However, it is rare to find a company that offers both.
Fortunately, IG Group (LSE:IGG) seems like a very good option to get the best of both worlds. This is because it is up 490% since 2005 and has high dividend payments.
Company Overview
The organization is a global online trading and investment provider, with services spanning currencies, stocks, indices, commodities and more.
The business model is based on contracts for differences (CFD) and spread betting services. These financial products offer speculation on price movements in financial markets without the need to own the underlying asset.
IG also offers traditional stock trading services, with clients buying and selling entire shares. Additionally, it operates a variety of trading platforms.
It is currently focusing on technological innovation and entering new markets as its clients are mainly limited to Britain, Europe and Australia at the moment.
Potential rewards
While the 6.4% dividend yield right now is very high, I wanted to take a look to see if this is common for the company or more of a rarity. I found it to have some volatility in performance but very stable payouts overall:
Additionally, I wanted to know how profitable the business could be, so I tracked its net income margin from 2018 to 2022. I found that it has been somewhat less profitable recently than throughout its history. However, overall, its net margin ranks in the top 25% of companies in the capital markets industry.
Critical risks
When analyzing the IG Group's risk management objectives, four main areas of concern are outlined:
- Regulatory risks
- Commercial risks
- Business model risks
- Conduct and operational risks
Of these four, I believe regulatory and business model risks could cause the most immediate and likely negative effects on the company.
IG Group will need to spend a significant amount of money, including legal fees, managing the complex and internationally changing rules surrounding its leverage products and protecting clients' money. Any failure to comply with your protocol could result in heavy fines or suspension in areas of your operation.
Additionally, its business model is affected when clients do not pay money they owe, and if IG Group is unable to meet its financial obligations when due, its balance sheet and growth could be affected.
Watching carefully
I don't have a stake in this company yet, but it's certainly high on my watch list for later when I want to focus more on dividends than growth.
I consider an investment like this to be a rare find, with minimal risks to your finances if you continue to operate effectively in accordance with your risk management framework.
