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How I’d invest £12k in high-yield ISA shares to generate income of £70 a month

Young female business analyst looking at a graph chart while working from home
Image source: Getty Images

As stock markets crash around the world, I think now is a fantastic opportunity to invest in high-yield FTSE 100 shares for dividend income and share price growth.

The index was already full of dirt-cheap income stocks even before yesterday’s meltdown, which saw more than £75bn wiped off UK blue-chip values. With the index falling 3.86% on Wednesday, plenty of stocks on my watch list look even better value.

I’m using this share price crash

Last Friday, I noticed that 10 FTSE 100 stocks were yielding at least 6% a year. Since then, their dividend yields have increased by up to 20%.

Yields are calculated by dividing the dividend per share by the share price. This means that if the share price falls, the yield automatically climbs. As a result of this week’s banking crisis sell-off, every single one of my top 10 list of FTSE 100 stocks now yields a fair bit more than they did just a few days ago.

This makes today an even more tempting time to buy high-yield shares with the aim of generating tax-free passive income inside an ISA.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Last Friday, just before the Silicon Valley Bank meltdown hit the newswires, mining giant Rio Tinto was yielding 6.97%. Today, its yield stands at 7.66%. Similarly, housebuilder Barratt Developments’ yield has climbed from 8.23% to 8.61%.

Unsurprisingly, the biggest yield increases have come in the financial services sector. On Friday, asset manager abrdn was yielding 6.28%. Today it yields 7.62%. Incredibly, its income stream has leapt 21% in less than one week.

Insurer Aviva was yielding 6.45% last Friday. It now yields 7.62%.

A great moment for income seekers

Insurer Legal & General Group, a long-term target of mine, has seen its yield jump from 7.41% to 8.42%. Phoenix Group Holdings‘ yield has jumped from 7.69% to 9.03%.

Asset manager M&G’s yield is now paying income of a staggering 9.88%, up from 8.46% on Friday. The yield paid by high-street bank NatWest has jumped from a staggering 10.38% to a scarcely believable 11.57%.

It’s worth pointing out that a high yield is not always good news. Often, it’s a sign of a company in trouble, because it means the share price has crashed, or at the very best, gone nowhere for years. Future dividends are not guaranteed, too, so they can be cut or cancelled without notice.

Once a yield hits double digits, it’s particularly precarious. A few months ago, Persimmon and Rio Tinto offered the highest yields on the FTSE 100. Both have since slashed their dividends. Any of my top 10 high-yield FTSE 100 stocks could take the knife to their shareholder payouts if today’s troubles worsen. NatWest’s looks vulnerable at today’s level.

If I invested my £12,000 in any three or four of these shares, I should easily generate an average yield of 7% a year, which should give me income of £840 over the first 12 months. That works out at £70 a month.

Now I just need to scrape together the necessary money before that ISA deadline arrives. I don’t want to miss this chance.

The post How I’d invest £12k in high-yield ISA shares to generate income of £70 a month appeared first on The Motley Fool UK.

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Harvey Jones has positions in Persimmon Plc and Rio Tinto Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023