Could buying dividend shares today and in the following years help me aim to become a millionaire in future? I think that, with careful selection and a long-term approach to investing, it might do.
As an example, here is how I think investing from now could help me aim for a million by 2050.
Today’s market offers juicy yields
The FTSE 100 index contains the biggest companies listed on the London stock market. In the past, such shares have often been priced at a level that means their dividend yields are fairly low.
In today’s market though, British dividend shares seem to have fallen out of favour with many investors. I see that as an opportunity for me as a long-term investor.
Take a look at some of the highest-yielding FTSE 100 dividend shares as an example. Phoenix offers 11.1%. Vodafone is on 9.9%, while M&G offers 9.8%.
Balancing risk and reward
When a dividend yield is in double figures, that can suggest there is an elevated risk associated with owning the shares.
Is that true in this case? Phoenix and M&G could suffer from weaker demand in tough financial markets. Vodafone has a large debt pile and is shrinking its revenue base, for example through its recent sale of Spanish assets.
Nonetheless, I think there is a potential mismatch between the risk and reward offered in today’s market. Even allowing for some of the risks involved, these sorts of yields seem high to me. By diversifying across a range of shares, I would also spread my risk.
Many FTSE 100 shares have proven business models that have helped them make large profits. I am optimistic that, for some at least, that will also be the case in future.
What do such yields mean for me as a small private investor? Imagine I put £5,000 into a Stocks and Shares ISA today at an average annual return of 10%, then kept adding £650 per month.
In 2050, at that rate, I ought to have an ISA worth a cool million pounds.
Looking to the future
That example does contain some assumptions regarding constant dividends and share prices. In reality, both could move up or down over time.
But I think the bigger point is clear. Today’s high single and double digit percentage dividend yields from FTSE 100 shares offer me a great possible buying opportunity. Adding these sorts of blue-chip dividend shares to my portfolio, and continuing to buy over time, could help me build serious wealth.
To do that, I need to start. Specifically, I would need to look across the universe of possible purchases and decide what shares look like the right ones for me to set a course to a brighter financial future.
The post I’d aim for a million by 2050 buying cheap dividend shares today appeared first on The Motley Fool UK.
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C Ruane has positions in M&g Plc and Vodafone Group Public. The Motley Fool UK has recommended M&g Plc 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.
