FTSE 100 tobacco and nicotine products manufacturer Imperial Brands (LSE: IMB) is one of those shares regularly overlooked by investors.
Companies in this sector, like those in oil, are ethically unpopular nowadays, but this misses a key point, I think.
Another is that because they are overlooked, they tend to offer excellent value. And the final reason in the case of tobacco and nicotine product firms is that they pay high dividend
As a former heavy smoker myself, I think this is the least they owe me.
Regular high dividend payer
In the past four years, working back from 2022, Imperial Brands paid 7.6%, 8.9%, 10.1%, and 11.3% in dividend yields.
Last year, the total dividend was 146.82p. This gives a yield of 7.5% based on the current share price of £19.67.
At this price, just under £11,000 would buy me 559 shares in the firm.
Big passive income generation
So, 559 shares in the company would make me around £825 in dividends in the first year. After 10 years averaging the same yield, I would have another £8,250 on top of the £11,000 or so investment.
This is known as ‘dividend compounding’ and is the same process as compound interest in a bank account. But rather than interest being reinvested, dividend payments are.
If this was done, then the dividend payments after 10 years would total £12,233 instead of £8,250!
This would mean £23,233 in total, paying £1,674 a year in dividends, or £140 a month.
Over 30 years on an average 7.5% yield, the investment pot would total £103,637, paying £7,466 a year, or £622 a month!
Inflation would reduce the buying power of the income, of course. And yields can fall as well as rise, depending on dividend payments and share prices.
However, it highlights that a significant passive income can be generated from relatively small investments in the right stocks if the dividends are reinvested.
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If u are reluctant to invest your hard earned in a dying industry, literally, substitute with your favoured IT u have discovered using your own research.
Share tips 2024: MoneyWeek’s roundup of the top share tips this week – here’s what the experts think you should buy
If you’ve been keeping a close eye on share tips 2024, then don’t miss this weekly round up of the top stocks to consider for your portfolio each week.
As well as the UK financial pages, we look at publications across the pond for investors who want to diversify their holdings internationally.
From investing in UK equities, European stocks, to finding the best performing stocks in the S&P 500 – here are our top share tips of the week.
Alcon (SWX: ALC) The Telegraph Alcon, the world’s biggest producer of contact lenses and equipment used in eye operations, has enjoyed impressive growth since it was spun out of Swiss pharmaceutical giant Novartis in 2019. Its underlying earnings before interest and tax have climbed by more than 50%. It has invested more in research and development (R&D), helping it launch new products. The shares are not cheap on 25 times forecast earnings, but their appeal lies in the scope for “highly profitable growth over many years to come”. CHF72
Domino’s Pizza (NYSE: DPZ) The Sunday Times Shares in Domino’s Pizza have declined by 13% since January, but the pizza chain is opening 70 new branches this year and saw a 37% jump in orders through its app in the first quarter of 2024. Like-for-like sales were down by 0.5% in the same period, thanks partly to the marketing budget being set aside for a bumper summer, with Euro 2024 kicking off in June. Analysts expect a 10% rise in underlying earnings to £148m in 2024. Domino’s is highly cash-generative, having paid out £427m to investors since March 2021. “Use its share-price dip to tuck in.” 322p
GSK (LON: GSK) Investors’ Chronicle A potential $30bn litigation is being priced into GSK’s shares from US lawsuits over its heartburn drug Zantac. But Citi analysts expect most of the remaining cases to be settled in the next six months for less than $3bn. GSK’s revenues have eclipsed expectations in the past two quarters and it’s launched new products, including the Jemperli cancer drug. Litigation could hurt in the short term, but at this price it’s “worth looking at the bigger, and now far brighter, picture”. 1,733p
Relx (LON: REL) Shares Reliable revenue, profit, and cash-flow growth have allowed Relx to increase dividends consistently, even during the pandemic. The FTSE 100 company has transformed itself from being a publisher into becoming a provider and analyser of business-critical data. It has invested in innovation around data analytics and artificial intelligence. On a 2024 price/ earnings (p/e) ratio of 26.9 the shares are not cheap, but Relx can deliver consistent mid-single-digit growth, making it a good long-term bet. 3,299p
5. 3M (NYSE: MMM) Barron’s 3M, the American maker of Post-it Notes and Scotch tape, has been struggling with legal problems relating to chemicals and potentially faulty earplugs sold to the US government. But the conglomerate has been making big changes, resulting in a “smaller, safer, and more nimble company”. It spun off its healthcare business, announced legal settlements, reset its dividend and hired a new CEO. Growth is set to improve now that US manufacturing is picking up. $97
Smith & Nephew (LON: SN) The Mail on Sunday Many analysts believe Smith & Nephew (S&N) is undervalued. The medical equipment manufacturer has struggled with supply chains and inflation, particularly in orthopaedics, but new CEO Deepak Nath’s 12-point plan has shown some progress. While the FTSE-100 company is facing headwinds in China and may miss ambitious targets, it is still innovating in robotic surgery and wound care. The stock looks cheap on a low forward earnings rating and yields 3%. S&N is “far from perfect”, but the “company is cheap and worth buying for short-term upside”. 1,007p
THE REST… MicroSalt (LON: SALT) Shares Investors in MicroSalt, a producer of low-sodium salt for food manufacturers, could be rewarded if the Aim-listed company’s patented intellectual property fulfils its potential over the next decade. But revenue remains modest, and the firm has incurred significant operating losses due to investment in the brand and new products. Still, the shares are up 65% on February’s flotation price thanks to the potential to disrupt the food industry. Buy (71p).
Ashmore (LON: ASHM) The Telegraph Emerging-market asset manager Ashmore offers a dividend yield of more than 8%, backed by a balance sheet where the net cash pile represents half of the firm’s net assets and a third of its stockmarket valuation. The depressed valuation reflects “gloom and not much of the potential upside”, but the group “could yet emerge from its trough of despond”. Hold (192p).
Barclays (BARC) Investors’ Chronicle Barclays has a chequered recent history, but the success of its UK retail business, which launched mobile banking earlier than rivals, suggests that the core business is profitable and competent. Its US investment banking arm could be sold off, which would improve its return on tangible equity, and management is making progress on reducing costs. Buy (202p). Read more on if it’s worth looking at UK banking stocks.
Octopus Renewables Infrastructure Trust (LON: ORIT) The Mail on Sunday The Octopus Renewables Infrastructure Trust invests in a range of renewable energy sectors. Factors such as inflation and wind speed have affected revenue and deepened the discount to net asset value. But the group enjoys a steady rate of return, with 84% of revenues fixed or contracted until March 2026, and a solid dividend. The shares are a hold (76p).
Supermarket Income REIT PLC, announces that on 16 May 2024, that Benedict Green and his PCAs acquired 330,179 Ordinary Shares in the Company (£250,010.)
If I was starting a high-yield dividend stock portfolio today, here are 3 shares I’d buy. High-yield dividend stocks can be a great way to generate income. But it can pay to be selective when building a portfolio of them.
Edward Sheldon, CFA
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.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
Building a high-yield dividend stock portfolio sounds easy, in theory. In reality however, it can be quite challenging as stocks with high yields sometimes end up producing disappointing overall returns.
Here, I’m going to highlight three shares I’d buy if I was starting a high-yield portfolio today. These shares aren’t the highest yielders in the market however, I see them as attractive from a risk/reward perspective.
A low volatility stock If my goal was income, one of my first picks would be National Grid (LSE: NG.), the gas and electricity company that operates in the UK and the US.
The main reason I’d go for this stock is that demand for electricity and gas is unlikely to fall off a cliff any time soon. So I’m unlikely to experience catastrophic losses owning it.
I also like the fact that the shares have a very low ‘beta’ of 0.40. This means that for every 1% move in the UK stock market, they only move around 0.40%.
When it comes to dividends, National Grid’s a reliable payer. For 2024, it’s expected to pay out 58.2p per share. At today’s share price, that translates to a yield of about 5.2%. That’s not spectacular, but it’s decent.
A risk is interest rates. If they were to rise from here, National Grid’s share price could fall since the company has a lot of debt on its books.
I think it’s more likely that rates will go down and not up in the years ahead though. So I see the backdrop as favourable.
Long-term growth Another company I’d go for is banking giant HSBC (LSE: HSBA). One of the largest businesses on the London Stock Exchange today, I see it as a blue-chip stock.
Now, bank stocks like HSBC can be a little risky. That’s because banking’s a cyclical industry.
But I like the long-term story here. In recent years, HSBC has positioned itself to benefit from higher growth areas such as Asia and wealth management. So in the long run, it looks capable of providing attractive overall returns.
As for dividends, the yield here is a little complex because HSBC’s paying a special dividend this year.
For 2025 however, it’s expected to pay out 61.9 cents per share. At today’s share price, that equates to a yield of around 7%, which is no doubt appealing.
I’ll point out however, that HSBC’s looking for a new CEO. And whoever gets the top job could potentially decide to lower dividend payments.
A clean energy play Last but not least, I’d go for The Renewables Infrastructure Group (LSE: TRIG). It’s an investment company that owns a portfolio of clean energy assets.
Again, I like the long-term story here. In the years ahead, the clean energy theme is only likely to become more prevalent. So I think this company’s capable of providing attractive returns.
Lower interest rates should help. Over the last two years, the company’s share price has fallen as rates have risen. So lower rates could lead to a rebound.
This year, management’s targeting a dividend payment of 7.47p. At today’s share price, that equates to a yield of around 7.3%.
As always though, dividends are never guaranteed. If the company’s cash flows were to fall due to lower power prices, income may be lower than anticipated.
Questor: this investment fund outperforms the global index
Questor Wealth Preserver: time to switch from the Invesco bond fund to the stock market
The Telegraph
Robert Stephens18 April 2020
Microsoft, Amazon and Nvidia are among the trust’s largest holdings CREDIT: Mike Segar/REUTERS
Buying a global stock market tracker fund is arguably the simplest way for any investor to obtain an inflation-beating return over the long run. The MSCI AC World Index, for example, has generated an 11.5pc annualised return over the past decade.
Over the same period, inflation has amounted to around 2.9pc per year on average.
Given the stunning historical performance of shares in real terms, Questor is shifting the focus of its Wealth Preserver portfolio towards the stock market. Although shares are significantly more volatile than other asset classes over the short run, our inherent long-term focus and willingness to tolerate temporary fluctuations in market values means they should be the focal point of our portfolio.
However, rather than simply purchasing a range of tracker funds, companies such as JPMorgan Global Growth & Income will instead be added to our portfolio.
After all, the investment trust has comfortably outperformed the MSCI AC World Index, which is its benchmark, over recent years.
For example, over the past decade it has produced a 15.3pc annualised return. This is 3.6 percentage points greater than the annualised return of the wider index.
JP Morgan Global Growth & Income has also been a strong performer since originally being tipped by this column in April last year. Its share price has risen by 22pc, versus a 3pc gain for the FTSE 100 index, as the US stock market has surged higher.
Indeed, US-listed equities account for roughly 68pc of the trust’s assets. This is four percentage points higher than its benchmark and highlights the dominance of the US stock market on the global stage.
Although growing levels of debt and elevated political uncertainty, alongside heady valuations for some stocks, suggest the US stock market’s growth potential is now somewhat more limited than it was a year ago, an ongoing strong economic performance and the prospect of interest rate cuts mean further capital gains are likely to be ahead for investors.
While the trust’s shares trade at a 2pc premium to net asset value and it currently does not employ gearing at a time when other companies offer wide discounts and utilise substantial borrowings to magnify their returns, its track record of outperformance suggests it remains a sound long-term option.
Well-known businesses such as Microsoft, Amazon and Nvidia are among the trust’s largest holdings in a portfolio that typically numbers between 50 and 90 stocks.
Although it has the aforementioned overweight position in US-listed equities, as well as a four percentage point underweight to Japan’s stock market, the trust uses a bottom-up strategy that is not driven by a company’s listing location or sector.
This means its performance could materially differ from that of its benchmark, which in Questor’s view is ultimately the whole point of investing in actively managed funds. Otherwise, a tracker fund would produce a very similar result at a potentially lower cost and with significantly greater diversification.
Despite its large exposure to the low-yielding US stock market, the company’s dividend yield currently stands at a respectable 3.1pc.
Its shareholder payouts have risen by 8pc per annum on a per share basis over the past four years, thereby making it a very realistic income investing option, with the company aiming to pay out at least 4pc of its previous year’s NAV as a dividend each year.
Given the stock market’s long-term track record of delivering strong growth on a real terms basis, it is logical for equities to become an increasingly dominant part of our portfolio.
The JPMorgan Global Growth & Income investment trust has a highly attractive track record against the global index and yet still trades at only a modest premium to NAV and it is a likely beneficiary of upcoming interest rate cuts in the US. It will now be added to our Wealth Preserver portfolio.
Questor says: buy
Ticker: JGGI
Share price at close: 546p
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Alan Oscroft
When times are tough, like we saw in the pandemic and stock market crashes… people sell shares. When times are good and stock markets are booming… people buy shares.
Isn’t that the wrong way round? Don’t we want to buy shares when they’re low and sell when they’re high? I know I do.
The holy grail of investing a Trust that pays u a dividend and sits in your account at nix, nada, nothing, if u took out your stake and re-invested it in a higher yielder.
Dividends earned but not re-invested in back into JGGI. A trust to consider if u are in the accumulation stage, if/when Mr. Market gives u the chance to buy. To grow your Snowball it would have to be pair traded with a higher yielder.
The Income portfolio, there were fewer big movers as the model portfolio advanced to a price return of 8.77% since its launch in mid-November of last year – dividends paid will have added at least another 2.5% to that price return. Yet again, the star performer was the global utilities and infrastructure fund Ecofin Global, which has been up 8% over the last month and 19% since the model portfolio launched. Ecofin. It helped that interest rates and 10-year bond yields rose in April, as did listed infrastructure stocks led by utilities, with low valuations and solid earnings reports. The fund reports that the global utility index and EGL’s NAV have now outperformed the MSCI World Index over three months, almost entirely owing to US constituents of the portfolio “which are beginning to be recognised as future beneficiaries of the datacentre and AI power needs” become obvious to investors. This defensive fund is now up 21% over the last six months.
