I’m always looking out for the right shares to buy for my portfolio. The majority of my holdings provide me with a dividend. And this is great because it allows me to either pursue a compound returns strategy whereby I reinvest my dividends year on year, or enjoy the passive income.
Picking dividend stocks
I’m looking at the bear part of the market, because when share prices dip, dividend yields go up.
However, I have to be cautious, because when yields get really big, it can be a sign that they’re unsustainable.
For example, Persimmon‘s yield reached 20% as the share price collapsed in late 2022. That’s huge, and it looked like a warning sign. It was.
In late 2022, the housebuilder said it would be reducing its dividend for the financial year. We won’t know what it is until the final results are published. But it won’t be anywhere near 20%.
One way of assessing the sustainability of the yield is the dividend coverage ratio (DCR). This is a metric that allows us to measure the number of times a company can pay its stated dividends to shareholders.
In 2021, Persimmon’s coverage ratio indicated it only just has enough income to pay its shareholders.
As such, a DCR around one is a reason for caution. A DCR around or above two would be considered healthy.
Picking wisely
As noted, I’m wary of big dividends. But I also want a yield that going to help my portfolio grow and achieve 10% annualised returns.
So, I’ve been adding more dividend stocks to my portfolio in recent weeks that meet this criteria.
One such stock is Greencoat UK Wind — a closed-ended investment company, aiming to provide investors with an annual dividend that increases in line with retail price index inflation.
Currently, the dividend yield of 5% lags inflation. But it’s an exciting part of the market — UK wind energy — which should be boosted by the end of a moratorium on UK wind farms. Wind energy, despite being dependent on the weather, is among the cheapest ways to power our homes and there will be further technological advancements to come.
Hargreaves Lansdown is a favourite of mine, and I’ve recently topped up. The stocks and shares supermarket offers an attractive 4.6% dividend yield. And this is particularly attractive, given the firm’s growth potential.
The share price has moved up and down over the past three years due to a variety of factors. But right now, I think Hargreaves will turn out to be a big net beneficiary from the higher interest rate environment. Some analysts suggest the Bristol-based company could generate £200m from interest on customer deposits alone.
I’ve also been topping up on some FTSE 100 stalwarts including Lloyds and Barclays. Both of which will help passive income generation. The former has an attractive forward dividend yield for 2024 of 6.25%.
The post My top shares to buy for passive income in 2023! appeared first on The Motley Fool UK.
Could the ‘death of print magazines’ expose another new share pick?
We think print magazines are going extinct.
Marie Claire, NME, FHM and Loaded have all joined the choir digital. Many more famous titles have been wiped out entirely. However, all that wealth has NOT been destroyed. Instead, it’s moving to a hidden area of the industry most people never see.
This company in particular is greedily swallowing the spoils.
These past 5 years – while print readership has sharply declined – its revenues surged by 880%, and at a faster compounded rate than Google and Amazon! Meanwhile, profit margins have surged over 20X. Even if this growth doesn’t continue, we think it’s in a stronger position than ever before.
And thanks to the recent market mayhem, its shares are down over 50% from their previous highs. Now might be a rare second chance to grab a share of this monstrous growth.
All is revealed in this special report, ‘One Top Growth Stock from The Motley Fool’.
Secure your FREE copy now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Can the Warren Buffett method still help me get rich in 2023?
How I’d invest £20,000 in an ISA and aim for dividend income for life
3 top AIM shares to buy for retirement
How I’d invest £100 a month to target a £1,000 second income
Forget Cash ISAs, I’d buy bargain FTSE 100 dividend stocks
James Fox has positions in Barclays Plc, Greencoat Uk Wind, Hargreaves Lansdown Plc, Lloyds Banking Group Plc, and Persimmon Plc. The Motley Fool UK has recommended Barclays Plc, Greencoat Uk Wind Plc, Hargreaves Lansdown Plc, and Lloyds Banking Group Plc. 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.