Forget buy-to-let, investors should buy these dividend stocks!
Dividend stocks form a major part of my portfolio. For every one growth stock, I own around five or six companies that pay a dividend.
I’m always on the lookout for dividend stocks that can enhance my portfolio’s passive income generation further.
Stocks over houses
One thing I’ve learnt in recent years is that I’m much more content investing in stocks than houses.
I had bought a property for buy-to-let some years ago, and while it was a profitable venture, the yield wasn’t huge — 5% minus fees. And then I had to consider possible complications such as having a costly void.
Clearly, however, there were benefits. The price of the unit went up during the years in which I owned it. And, in the end, I sold it for a modest profit.
However, I contend that stocks offer me greater flexibility and the opportunity to average higher gains. The FTSE 100 has achieved annualised total returns around 8% over the past two decades. But if I invest wisely, I can hope to beat the index average.
Of course, investing in stocks does have its risks. The value of my investment can go down as well as up — but so can house prices.
Dividend stocks picks
When investing in dividend stocks, I’m looking to generate passive income from diversified portfolio of investments.
In theory, I could invest all my money in one sector with high yields, such as mining or banking stocks. However, this would leave me vulnerable to sector-specific challenges and events.
Instead, I need to spread my investments across different sectors.
So, here’s an energy stock I’ve recently bought. The Renewables Infrastructure Group is a UK-based trust investing in a range of green energy facilities.
It owns and operates a diverse portfolio of assets in several geographies, thus protecting the stock from over-concentration in technology types, weather systems, power markets, and regulatory frameworks.
There are, of course, concerns about the impact of government intervention on energy markets right now. Renewables is a highly profitable area to be in, but the Electricity Generator Levy in the UK will inevitability impact how much the firm can profit in the near term. It currently offers a 5.5% dividend yield.
Another dividend stock, and one that I’m looking to buy more of, is HSBC. The Asia-focused bank offers a 4.3% dividend yield and analysts are largely positive on the group’s forecast.
Net interest margins have increased, and with the tailwind set to continue, we could see even greater net interest income over the coming year. The bank will also profit from China’s reopening and a very positive set of indicators, including February’s PMI data (52.6).
I do have minor concerns about Ping An‘s attempts to divide the more lucrative Asian business from its European and US units. But with the bank performing so well over the last few quarters, that seems unlikely.
My final pick, which I’ve recently purchased, is big-yielding Vodafone. The telecoms company recently bottomed out after industry peers saw value in the stock, and snapped up shares, generating further interest in the knockdown share price.
Debt is sizeable, and coverage isn’t optimal, however the current 7.5% dividend yield is attractive. Even if the yield were cut to a more manageable 5%, it would still be in excess of the index average.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. James Fox has positions in HSBC Holdings, Renewables Infrastructure Group and Vodafone Group Public. The Motley Fool UK has recommended HSBC Holdings and Vodafone Group Public. 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