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How I’m building a second income with high yielders GSK and Royal Dutch Shell

Edward Sheldon

In recent years, I’ve been focusing on building up a portfolio of FTSE 100 dividend stocks within my ISA. My goal? To generate a growing tax-free income stream that I can eventually live off.

Currently, I have just under 20 stocks in my dividend portfolio, across a range of sectors. Yields on my holdings range from around 3.5%, all the way up to 7%. Here’s a look at two stocks within my portfolio that both yield over 5% right now.

Royal Dutch Shell

Royal Dutch Shell (LSE: RDSB) needs little introduction. The company is a multinational oil and gas company that is one of the largest companies in the world. With a market capitalisation of over £200bn, Shell is the largest name in the FTSE 100 index.

There’s a lot to like about it from a dividend-investing perspective. For starters, the stock offers a huge yield of 5.4% at present. You can’t deny that looks extremely appealing in today’s low-interest-rate environment, where it’s a struggle to find a bank account offering over 1%.

Furthermore, Shell also has a fantastic dividend track record. The company places a strong emphasis on rewarding investors with regular payouts and has not cut its dividend since World War II. That’s an amazing achievement when you consider that the oil price, and Shell’s profits, have fluctuated heavily in that time. Even when oil plummeted below $30/bbl in 2016, reducing profitability, Shell held its dividend steady.

Given its track record and its high yield, I’m happy holding the FTSE 100 stock in my dividend portfolio. Every quarter, I receive tax-free income from the company, for doing absolutely nothing.

GlaxoSmithKline

Another stock that I currently hold within my ISA dividend portfolio is GlaxoSmithKline (LSE: GSK). A global healthcare company, it specialises in pharmaceutical medicines, vaccines and consumer healthcare products and looks well placed to benefit from the world’s ageing population.

Like Shell, GSK also has a high yield at present. For the last few years, the company has paid shareholders 80p per share in dividends each year, which at the current share price of 1,550p, equates to a high yield of 5.2%.

There has been some concern in recent years that GSK’s dividend may be at risk of a cut. Earnings have been a little on the low side, and a potential acquisition of Pfizer’s consumer health business could have put pressure on the dividend. However, in late March, the company advised that it had withdrawn its interest in Pfizer, and also reassured investors that they could expect another payout of 80p per share this year, which was good news for income investors. As a result, I’m happy to continue holding GSK in my portfolio and I look forward to receiving more cash dividends from the company. 

It’s worth noting that when building a dividend portfolio, it’s important to always diversify over many different stocks to reduce risk. With that in mind, if you’re looking for more high-yield ideas for your own portfolio, why not take a look at the report below?

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Edward Sheldon owns shares in Royal Dutch Shell and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.