How I’d pick dividend stocks to retire with a second income using my £20k ISA allowance

Our writer details his strategy to build a second income stream before retirement by investing in dividend stocks with the tax benefits of an ISA.

Posted by

Mark David Hartley

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

As I plan for my retirement, the idea of a stable, lucrative second income becomes increasingly important. I enjoy the finer things in life so for a comfortable retirement, I need more than a basic pension scheme one way to try to achieve this is by investing in FTSE 100 dividend stocks in a Stocks and Shares ISA. These stocks have the potential for both capital appreciation and a steady stream of income through dividends. Plus, the benefits provided by an ISA allow British residents to invest up to £20,000 a year with no tax on the capital gains.

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.

Key dividend metrics

When picking stocks for my income portfolio, I typically check the yield and payout ratio.

The yield is a percentage paid out per share. For instance, if a stock pays a £1 dividend and its price is £20, the dividend yield is 5%. Higher yields can indicate attractive income opportunities, but they can also suggest underlying company risks if yields are exceptionally high compared to peers.

The payout ratio measures the proportion of earnings paid out as dividends. A payout ratio below 60% is often considered sustainable, indicating that a company is retaining enough earnings for growth while providing returns to shareholders. Conversely, a very high payout ratio could signify that a company is overextending itself to maintain dividend payments, which can be a red flag for investors.

Another thing to check is the ex-dividend date — especially if the company only pays dividends once a year. This is the cutoff date established by the company, after which new buyers of the stock will not receive the next dividend. To qualify for the dividend, an investor must purchase the stock before this date. 

A stock to consider

One stock I think would make a great addition to a second income portfolio is British Land Group (LSE: BLND). This real estate investment trust (REIT) focuses mainly on commercial property but has a diverse portfolio of offices, retail spaces, and residential developments

However, the housing market is highly sensitive to economic downturns, which is a risk to consider. If an issue similar to the pandemic occurs again, the share price could tank. It also risks losing some of its market share to competitors like Taylor Wimpey and Vistry Group, which could threaten its profits.

Despite a 40% price rise in the past year, the company reported £1m in losses this year. However, earnings are forecast to grow at 28% per year going forward and debt is well covered. I expect it will return to profitability soon.

It’s been paying dividends for almost 30 years, rising from 9p per share in 2000 to 31p in 2019. However, dividends were reduced in 2020 and now stand at 22.8p per share. The yield is relatively high, at 5.3%. That would pay over £1,000 in dividends per year on a £20,000 investment. If I contributed £5,000 per year to the ISA and reinvested dividends for 20 years, it would pay over £21,000 per year. A decent second income.

Overall, it looks like a reliable payer that increases during strong economic periods. As such, I plan to buy the stock when I’ve freed up some capital next month.

Current dividends received £8703.20

Cash for re-investment £1,124.16

For re-investment in either FGEN or FSFL

Foberttop
mnblanksVeiSp@gmail.com
45.13.191.83

My partner and I absolutely love your blog and find most of your post’s to be just what I’m looking for. Would you offer guest writers to write content available for you? I wouldn’t mind producing a post or elaborating on a lot of the subjects you write with regards to here. Again, awesome blog !

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Until next year, I cannot accept guest writers or direct email communication as I will be busy outside of the market. I read all comments where I delete a the spam, answer one request a day, post one advert and approve most comments if they relate to the Snowball. GL

Sequoia Economic Infrastructure Income Fund Limited  

Dividend Declaration

Interim Dividend for the Period Ended 30 September 2024

The Directors of the Company have declared that an interim dividend of 1.71875p per share will be payable to holders of Ordinary Shares as follows in respect of the three-month period ended 30 September 2024:

Ex-Dividend Date:	24 October 2024
Record Date:	25 October 2024
Payment Date:	22 November 2024
Dividend per Ordinary Share:	1.71875 pence per share

The Company provides the option for shareholders to invest their dividend in a Dividend Reinvestment Plan (“DRIP”). Shareholders wishing to participate in the DRIP should contact the Company Secretary for further information.

The best low cost index funds to buy now

Index funds are an easy, low-cost way for investors to invest in a sector or asset class. Here’s a selection of the cheapest passive tracker funds on the market right now

(Image credit: Yuichiro Chino)

Chris Newlands

The much-anticipated shift in the balance of power had been many years in the making and the swap has awoken fund investors to the significant benefits of low-cost index investing. The amount of money held in index funds and exchange traded funds in the US – the world’s biggest investment market – surpassed that of actively managed funds for the first time. 

According to data released by Morningstar, passive mutual funds and ETFs in the US – a barometer for the rest of the world – held $13.3tn in assets at the beginning of 2024, while active ETFs and mutual funds had just over $13.2tn.

Stay ahead of the curve with MoneyWeek magazine and get the latest news, analysis and expert opinion.

What is passive investing?

In simple terms, passive investing means the securities held in your fund are not chosen by a portfolio manager, which can make the cost of investing drastically cheaper. 

Passive or index funds instead buy a basket of assets that try to mirror what the stock market is doing instead of trying to beat it. Using much more technical language the CFA Institute, the association of investment professionals, describes it as so: “Passive investing refers to any rules-based, transparent, and investable strategy that does not involve identifying mispriced individual securities.”

If you are a passive investor, you are also in it for the long haul. Passive investors limit the amount of buying and selling within their portfolios, which is also what makes it such a cost-effective way to invest. 

An obvious example of a passive approach is the purchase of an index fund that follows a major index like the FTSE 100 in the UK and the S&P 500 in the US.

Why might passive investing be better than active investing?

On paper, being an active investor and trying to beat the market sounds intuitively like the best way to invest. The problem, however, is that beating the market is difficult and the majority of active funds not only fail to do so but also significantly underperform. That, coupled with the fact the fees on active funds are almost always higher, means they can be an unadvisable way to invest in the stock market.

Indeed, according to a report from the London Stock Exchange Group, 64.5% of actively managed funds failed to beat their benchmark indices over the 12 months to the end of March this year. The numbers showed investors in 9,036 active funds were worse off than if they had invested their savings in an index tracker. 

The report stated that much of this underperformance was caused by the high fees.

Robin Powell, the author of the blog, the Evidence-Based Investor, says: “Why index? Simply put, because indexing works. The alternative — active investing — may work, but the overwhelming probability is that it won’t and you would have been better off not taking the chance.”

How to look for low cost index funds

So what should you look out for when choosing the best index funds and ETFs? There are several factors to be aware of.

Low costs are key, of course. But it is also important to consider the tracking error (the difference between the performance of the index and the fund). Since the goal of the tracker is to match the performance, significant outperformance is just as much of a reason to worry as is significant underperformance, as it suggests problems with the way the fund is run. It can also indicate how fees will hit performance in the long run. 

Every penny you pay in management fees is a penny that does not compound over time. So investors should look for low cost index funds with the lowest possible total expense ratios (TERs) – the annual running costs for the fund. Some brokers, such as Hargreaves Lansdown, offer management fee discounts for investors who pick their preferred funds. 

Tracker funds typically come in one of two main types: open-ended funds (Oeics), which are not traded on the stock market, or exchange-traded funds (ETFs), which are.

Different types of funds are suitable for different types of investors. Many online stockbrokers have different charging structures for different funds. That means the best fund for you might depend on which is the cheapest and easiest to buy and sell. ETFs can be bought and sold when the market is open, while Oeics can take days to buy and sell as they need to create and redeem shares for investors.

Some funds can charge large entry or exit fees. None of the funds on the list below charge entry fees, but there are some on the market that charge as much as 5% for new investors.

These fees can be a huge drag on returns in the long run, especially when other charges are added. This excludes trading commissions, which some brokers might charge when dealing funds (these fees can turn even the best-looking low cost index funds into expensive investments).

The best low cost index funds to buy now

Here is a selection (which is far from exhaustive) of some of the cheapest passive tracker funds (Oeics and ETFs) on the market right now.

This list does not reflect all the fees and charges (as well as discounts) that might apply though different brokers.

Index tracked	Fund	Expense ratio
UK Equities
FTSE 100	iShares 100 UK Equity Index Fund	0.05%
FTSE 250	Vanguard FTSE 250 UCITS ETF	0.10%
FTSE All-Share Index	Vanguard FTSE UK All Share Index Unit Trust	0.06%
MSCI United Kingdom Small Cap Index	iShares MSCI UK Small Cap UCITS ETF	0.58%
FTSE UK Equity Income Index	Vanguard FTSE UK Equity Income Index Fund	0.14%
Bonds	Row 7 – Cell 1	Row 7 – Cell 2
FTSE Actuaries UK Conventional Gilts All Stocks Index	Legal & General All Stocks Gilt Index Trust	0.15%
iBoxx £ Non-Gilts Overall TR Index	iShares Corporate Bond Index	0.11%
Bloomberg Global Aggregate Float Adjusted and Scaled Index	Vanguard Global Bond Index	0.15%
JP Morgan EMBI Global Diversified Index	L&G Emerging Markets Government Bond (USD) Index Fund	0.32%
Global	Row 12 – Cell 1	Row 12 – Cell 2
MSCI World Index	Fidelity Index World	0.12%
S&P 500	Vanguard S&P 500 UCITS ETF	0.07%
Solactive L&G Enhanced ESG Developed Markets Index NTR	Legal & General Future World ESG Developed Index Fund I GBP Inc	0.15%
MSCI Emerging Markets Index	L&G Emerging Markets Equity Index Fund	0.25%
FTSE Developed Europe ex UK Index	Vanguard FTSE Developed Europe ex-UK Equity Index Fund	0.12%
FTSE World Asia-Pacific ex-Japan Index	iShares Pacific ex Japan Equity Index	0.11%
FTSE Japan Index	iShares Japan Equity Index	0.08%

Source: MoneyWeek research

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If the day cometh when there are no Trusts yielding around 6/7% to re-invest the income from the Snowball, if it happens it will not be anytime soon and u only need one or two Trusts to re-invest the earned dividends.

One option would be to re-invest in tracker e.g. S&P or the FTSE100 but as always best to DYOR. If u can choose when to sell u shouldn’t lose any of the hard earned as the historic growth of the S&P is around 7%. The average historic drawdown is around 20% (loss of capital) so u would have to hold the tracker thru thick and thin. If the S&P fell 20% it’s more than probable that many Trusts would be yielding 7% plus.

Primary Health Properties PLC

(“PHP”, the “Company” or the “Group”)

Q3 2024 Trading Update and Capital Markets Day

Primary Health Properties PLC, one of the UK’s leading investors in modern primary healthcare facilities, publishes a trading update for the third quarter of the year to 30 September 2024 (“Q3 2024”) ahead of the Group’s Capital Markets Day today at 1.00 pm (2.00 pm SAST) for institutional investors and sell-side analysts.

Mark Davies, CEO of Primary Health Properties, commented:

“At today’s Capital Markets Day we will focus on the significant opportunity ahead in primary care and PHP’s continued dedication to dividend growth. We will be demonstrating PHP’s capabilities in this regard across both the UK and Ireland and how extremely well placed the Company is to benefit from the growth drivers and political momentum we see in our sector and how this will deliver future earnings and rental growth.

“We welcome the new Government’s commitment to reforming the NHS and specifically the need for increased investment in primary care which will add further resilience to the business model. As highlighted in the Lord Darzi report, the current primary care estate in the UK is not fit for purpose and there is an urgent need to provide more high-quality, multidisciplinary care in the community in modern facilities with digital infrastructure and diagnostics. In the future this will result in a shift in resources from hospitals towards primary care and community led health services that PHP has been successfully delivering for nearly 30 years.

“PHP is very well placed to capture the significant opportunity ahead and this will be the focus of our capital markets day.”

Q3 2024 Trading Update

Rental growth

In the nine months to 30 September 2024 the Company generated an additional £2.7 million (Q3 2023: £3.3 million) of extra rental income from its rent review and asset management activities, both in the UK and in Ireland.

An extra £2.4 million (Q3 2023: £3.1 million) of income was generated in the nine months from 241 reviews that have been settled, representing a 7.9% increase over the previous passing rent, equivalent to 3.0% (2023: 4.4%) on an annualised like for like basis.

Importantly, the Company continues to see an improving open market value (“OMV”) rent review outlook continuing the positive trend seen in recent years. The growth from rent reviews completed in the nine months to 30 September 2024, is summarised below:

PHP remains on course to generate in excess of £3.0 million (2023: £4.0 million) of extra income from rent reviews in 2024 driven by the improving OMV review outlook, partially offset by the impact of declining inflation on indexed-linked reviews.

A further £0.3 million (Q3 2023: £0.2 million) has been generated from asset management activities where the Company has exchanged on four new projects, completed seven lease regears and six new lettings in the UK together with a further six asset management initiatives in Ireland. There is a growing momentum driven by demand for space and a strong pipeline of a further 39 asset management projects which, in addition to extending lease lengths and increasing rents, will improve the environmental performance of the buildings we own.

Investment and development

The Group continues to adopt a very disciplined approach to further investment and risk-controlled development activity, which will only take place if accretive to earnings.

Investment activity during this period has been deliberately held back but we are now seeing a range of interesting and accretive opportunities as the market adjusts to the new interest rate environment.

On the development side we legally completed and have now commenced construction of the new South Kilburn Medical Centre which is part of a large housing redevelopment in the London Borough of Brent. To ensure the viability of the project the Integrated Care Partnership and Brent Council contributed £1.0m towards the infrastructure and fit out costs for the medical centre. The project will be accretive with a yield on cost of 6.2% and a profit on cost in excess of 10%.

The management team will be commenting further at the Capital Markets Day on the growing opportunities it can see in its risk-controlled development pipeline in the UK and Ireland.

Financing

In the period, the Group positively addressed the refinancing of debt maturities falling due in 2025 and has completed a new £170 million facility with Barclays with £70 million of the proceeds from the new facility being used to repay the variable rate bond ahead of maturity in December 2025. The Group has also agreed terms with Lloyds to extend its £100 million facility for a further three years with an option to increase the size to £125 million. The new facilities have options to extend by a further year on each of the first and second anniversaries.

As at 30 September 2023 the Group’s net debt stood at £1,322.7 million (30 June 2024: £1,318.5 million) and on a pro-forma basis the Loan to Value (“LTV”) ratio was 48.1% (30 June 2024: 48.0%), within its target range. The Group has £301 million (30 June 2024: £308 million) of undrawn loan facilities available, net of capital commitments. 95% of the Group’s debt is fixed or hedged at a weighted average cost of 3.3%.

Dividend

As previously announced, on 3 October 2024 the Company declared its fourth quarterly interim dividend of 1.725p per Ordinary Share which will be paid on 22 November 2024 to shareholders who were on the share register at the close of business on 11 October 2024. The dividend will be paid by way of a property income distribution of 1.45 pence and a normal dividend of 0.275 pence. The dividend is equivalent to 6.9p on an annualised basis and represents a 3.0% increase over the 6.7p paid in 2023.  

MSCI’s Highest 10-Year Risk Adjusted Total Return Award

During the period, PHP was announced as the winner of MSCI’s Highest 10-Year Risk Adjusted Total Return Award for the UK in 2023 for the third year in succession. The award reflects the Group’s continued operational resilience and security of its income stream which underpins its progressive dividend policy as PHP completes its 28^th year of continued dividend growth.

The company also qualified for the FTSE/JSE All Share Index and the All-Property Index reflecting improved liquidity and global investor interest in PHP and good progress following the completion of the listing on the Johannesburg Stock Exchange (“JSE”) just 12 months ago.

Separately, we have also achieved EPRA Gold awards for both the 2023 Annual Report and Responsible Business Report.

Kepler

Top 5 most bought investment trusts in September
Turning to the world of investment trusts, these were the most bought trusts last month:

most bought trusts

1. Scottish Mortgage (SMT)
2. BlackRock WorldMining (BRWM)
3. Greencoat UK Wind (UKW)
4. Alliance Trust (ATST)
5. JPMorgan GlobalGrowth & Income (JGGI)
   Source: Hargreaves Lansdown, AJ Bell, Bestinvest and interactive investor

Scottish Mortgage (SMT) held onto top honours as the most bought trust in September. The FTSE-100 listed trust remains a popular choice for investors seeking Magnificent Seven exposure, delivering a stellar 12% increase in NAV in the last month.

Josef Licsauer, analyst at Kepler Trust Intelligence, comments: “Investors had raised questions over the valuation of SMT’s unlisted portfolio but the trust’s exposure has fallen from close to its ceiling in 2023 to around 24% this year, on the back of the successful IPO of Tempus AI and strong performance in its public holdings.

“Added to this, its share buyback programme continues apace, with SMT having bought back one billion shares since March and executing the largest single-day buyback by a UK investment company of 311m in May 2024. While its discount has widened slightly in recent months, it remains significantly narrower than its 20%-plus discount in mid-2023.”

BlackRock World Mining (BRWM) soared into the charts but was narrowly pipped to the post for first place. After a challenging few months, BRWM has chalked up a 13% increase in NAV in the last month, helped in part by gold prices rising due to conflict in the Middle East, alongside a juicy dividend yield of more than 6%. The trust holds significant positions in large-cap miners Rio Tinto, Glencore and BHP which should benefit from the large increase in demand for commodities to meet net zero commitments.

The other three trusts, Greencoat UK Wind (UKW), JPMorgan Global Growth & Income (JGGI) and Alliance Trust (ATST) continued to curry favour with UK investors. Both JGGI and ATST have ticked up nicely in the last month, while investors took the opportunity to lock in the chunky 7% dividend yield on the slight dip in UKW.

And that brings the curtain down on trading in September. Uncertainty remains firmly on the menu, with investors hoping for a more positive UK GDP print for August and nervousness is starting to build over possible changes to tax relief in the Autumn Budget. On the other side of the Atlantic, all eyes will be on the next round of corporate earnings with companies facing mounting pressure to justify the lofty valuations of the S&P 500. It’s shaping up to be an interesting (if slightly stressful) month.

jaewook.net
Sumbry36337@gmail.com
77.36.120.72

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By the Nile Crocodile.

The current portfolio was started on the 9/09/2022.

The minimum buying yield was 5% but as Investment Trust prices have fallen the yields have risen, so the new target is 7%.

After ten years the plan was to receive income of £13,790 pa.

IF next year’s target of 10k is met it will equal the plan’s figure for 2028.

The actual income for the plan could be around 15k pa, this is not a fcast or a target, yet.