Many people dream of earning passive income while sleeping but few understand the specific strategies to reach that goal.
There’s actually a wide range of options, some that are fairly easy and others extremely difficult. Setting up a business, for example, can be lucrative, but it’s risky and takes a lot of initial time and effort.
Investing in dividend stocks is much easier but still involves time, money and a side order of risk.
Right now, the UK market looks like a great place to get started. For a rare moment in history, the FTSE 100 is outperforming the S&P 500 over a 12-month period.
Created on TradingView.com
Yet there are still many high-yield dividend stocks selling at discount prices.
Grab your calculator
Ok, so £15,000 a year — that’s a hefty chunk of passive income. How many dividend stocks are needed to achieve that? Well, dividends differ from stock to stock but we can get an idea of their value from the yield. This is the percentage each one pays on the share price.
A few quick calculations tell me that about £214,000 is needed to return £15,000 a year.
That’s a lot of dividend stocks!
Which stocks might be best?
In my portfolio, I try to aim for stocks with yields between 5% and 9% so that my average yield is around 7%. I think this is a realistic target for the average investor.
Take Legal & General, for example, with its 9% yield. It’s quite possibly the most popular dividend stock in the UK — and for good reason. It has a very long history of proving its dedication to shareholders by consistently increasing dividends.
For income investors, this is usually the most important factor. When a company cuts or reduces dividends, it can devastate a passive income strategy. L&G never misses a beat, raising dividends by around 5% to 20% every year.
To help counter this, it regularly buys back its own shares to boost the stock’s value. Currently, it’s planning a further £500m on top of a previous £1bn.
But it’s just one stock worth considering. Other good examples include Aviva, HSBC and Imperial Brands. Building a portfolio of 10 to 20 similar high-quality dividend stocks is the first step in this strategy.
But what about the £214,000?
That’s the slow part. To reach that goal requires regular investment, patience and compounding returns.
Say an investor puts £300 a month in a 7% portfolio with moderate 4% price appreciation. Even with dividends reinvested, it’s going to take over 20 years to reach £214k.
But as they say — time is money. So get started as soon as possible and who knows, maybe one day both time and money will be available in abundance !
The best closed-end funds will significantly boost your portfolio income and allow you to buy their underlying stocks and bonds at a discount.
(Image credit: Getty Images)
By Charles Lewis Sizemore, CFA
If someone offered to sell you a dollar for 90 cents . . . well, you’d probably think it was too good to be true. Yet these are exactly the kinds of opportunities that arise in the market’s best closed-end funds (CEFs).
CEFs are a type of investment fund, and in fact, they are older than mutual funds. The very first closed-end fund was launched in 1893 – more than 30 years before the first traditional mutual funds (like those you might find in your 401(k) plan) were created.
As with their mutual fund cousins, CEFs are pooled investment vehicles that hold portfolios of stocks, bonds or other assets. But that’s where the similarities stop.
Mutual funds are open-ended. When you want to invest, you or your broker sends cash to the fund, and the manager takes that fresh cash and uses it to buy assets. When you want to sell, the manager will sell a small amount of assets to cash you out. Money is always coming and going, and there’s no hypothetical limit to the amount of new money a popular fund can take in and invest.
Kiplinger
Closed-end funds are different. CEFs have initial public offerings (IPOs) like stocks, and there is a fixed number of shares that then trade on the stock market. If you want to buy shares, you buy them the same way you’d buy a stock.
And here’s where the fun starts. CEF prices are set by the market the same way a share of Apple (AAPL) or Amazon.com (AMZN) would be, but that price can vary wildly from the value of the assets the fund holds. It’s not uncommon to see CEFs trading at a premium to the value of the assets they own. But just as you’d never pay $1.10 for a dollar, you’re generally better off avoiding CEFs trading a premium.
Discounts, however, are another story. Closed-end funds often sell at massive discounts to net asset value (NAV). In these cases, they’re effectively worth more dead than alive!
Another nice aspect of CEFs is that, unlike mutual funds, they can use debt leverage to juice their returns. That same leverage also allows closed-end funds to sport some of the highest yields you’re likely to find.
Today, we’re going to take a look at some of the best CEFs on the market. Each of these funds trades at a reasonable discount to NAV and offers a yield that’s at least competitive, if not downright extravagant.
Data is as of November 24. Distribution rate is an annualized reflection of the most recent payout and is a standard measure for CEFs. Distributions can be a combination of dividends, interest income, realized capital gains and return of capital.
Nuveen Real Estate Income Fund
Market value: $284.0 million
Distribution rate: 7.2%
Discount to NAV: -4.3%
Expenses: 3.64%*
It’s been a rough stretch for real estate investment trusts (REITs). Because REITs have always had a major emphasis on income, investors came to view them as a bond substitute over the past two decades. But when bond yields surged in 2023 – and bond prices collapsed – REIT prices also fell in sympathy.
But now that prices in the sector have reset, investors have a chance to buy quality real estate assets on the cheap. And there’s an inflation angle as well. Land and building prices tend to at least keep pace with inflation over time, and commercial rental contracts will generally have rent escalators that will rise.
REITs are a fine way to get exposure to real estate. But why pay retail for them if you don’t have to?
The Nuveen Real Estate Income Fund (JRS, $7.67) is one of the best closed-end funds that invests in REITs. It owns essentially the same collection of REITs you’d expect to find in any mutual fund or exchange-traded fund (ETF), such as logistics REIT Prologis (PLD), data center REIT Equinix (EQIX) or self-storage operator Public Storage (PSA), but it has the added benefit of owning them at a discount.
At current prices, JRS trades at a 4.2% discount to NAV, which is wide given this CEF’s history. It also yields a very juicy 1.5%.
The Fed might be successful in bringing inflation to heel. Or we might see several more quarters of sticky inflation. Only time will tell. But either way, it makes sense to own a little real estate, and JRS is a smart way to do so.
How to Invest in CEFs (for 8.6%+ Dividends, 20%+ Upside)
Michael Foster, Investment Strategist
What if I told you I could get you a steady 8.6% dividend right now with ease? And with a big slice of that income rolling your way every month, too?
The key is to invest in an often-overlooked investment called a closed-end fund (CEF). As I write this, there are about 500 CEFs in existence, and they yield around 8%, on average. Some pay more than that, such as the 5 CEFs I reveal in my free investor report, “Indestructible Income: 5 Bargain Funds With Steady 8.6% Dividends.”
With a 8.6% average payout, you’d be banking a nice $25,800 yearly income stream (or about $2,150 a month!) on just a $300K nest egg. Imagine what that could do for your retirement. And those dividends are set to stay high in the years to come, no matter what happens with the Fed or the wider economy.
Probably the best thing about CEFs, including the five CEFs I’ll share with you in my free “Indestructible Income” report, is that they hold many of the blue-chip stocks you know well (and are probably sitting in your portfolio right now). So you don’t even have to change investments to get these 8%+ payouts!
The only difference? Instead of settling for lame S&P 500 dividends, you’ll be banking a cool 8.6%. And you’ll set yourself up for potential price upside, too!
At this point you may be wondering why we don’t hear a lot more about CEFs, given the huge dividends these funds pay out. Truth is, they’re overlooked for the silliest of reasons: investors hear “closed-end fund” and immediately think CEFs are too complicated. Journalists don’t help. They’d rather blather on about the newest gadget from the likes of Apple (AAPL) or the latest tweet (X?) from Elon Musk.
CEFs’ Huge Dividends Demystified
That’s too bad because CEFs really are quite simple: they’re like mutual funds or ETFs in that they pool money from investors, which the fund’s managers then use to buy a basket of stocks, bonds, real estate investment trusts (REITs) or other investments, depending on the CEF’s mandate.
The fund managers then buy and sell over time, handing profits over to us as dividends. CEFs trade on public exchanges and can be bought and sold, just like a stock.
(I give you a high-level breakdown of how CEFs work, including how they can generate big price upside while paying you outsized dividends, in your free “Indestructible Income” report.)
CEFs’ “plain vanilla” setup is great for us, for a couple of reasons.
First, and most important, it means CEFs are heavily regulated. Just like big companies, such as Microsoft (MSFT), Home Depot (HD) or Walmart (WMT), CEFs must account for their operations and file statements with the SEC every quarter. Even more reassuringly, most CEFs are managed by the biggest financial institutions, with the most investment resources and deepest connections at their disposal.
BlackRock is the best example. Not many people know that this monolith, whose $11.5 trillion in assets under management dwarfs the GDP of many countries, is a big CEF issuer.
Second, being publicly traded means CEFs are liquid. If you need cash, just sell your shares during market hours, Monday through Friday from 9:30 a.m. to 4 p.m. Eastern time. And buying CEFs has never been cheaper, with the advent of zero-cost trading.
That’s just the start of the great deal you get with CEFs.
Take a CEF called Nuveen Real Estate Income Fund (JRS). It holds high-yielding real estate investment trusts (REITs), which own a range of properties, from shopping malls to warehouses, and are exempt from corporate taxes so long as they pay out 90% of their profits to us as dividends.
The fund hands out a 7.3% dividend as I write this and holds a lot of familiar names in the REIT space, like warehouse owner Prologis (PLD), data center REIT Equinix (EQIX) and apartment REIT Camden Property Trust (CPT).
Normally, if you bought these stocks on an exchange, you’d have to pay the market price. But with JRS, you’re getting these companies for 4% less than if you bought the shares directly, as of this writing. That may not sound like a lot, but it really is a deal in disguise, as we’ll see in a moment.
This buying opportunity exists even though JRS crushed the benchmark REIT ETF, the Vanguard Real Estate ETF (VNQ), since the depth of the pandemic selloff, something many pundits will tell you an actively managed fund simply isn’t supposed to do.
JRS Clobbers Its Benchmark—and It’s Still Cheap!
How is this possible? Because of a funny quirk with CEFs: they tend to trade for less than what their portfolios are actually worth. And their current portfolio value is laid right out in front of us through a figure called net asset value, or NAV, which is easy to spot on any CEF screener worth its salt. Many CEFs, like the five I spotlight in your free “Indestructible Income” report, will go from trading at a discount to a premium and back again on the regular.
JRS is a good example: in the last decade, it’s traded at premiums as high as 4% and discounts as wide as 20%.
This, in effect, gives us a “buy low, sell high” setup that actually works: we simply buy our CEFs when they trade at unusual discounts and then sell when those discounts flip to premiums! And you get paid well to ride that particular train, with payouts like JRS’s 7.3% yield. This is why investors—particularly billionaire investors—love CEFs!
How to Buy in 3 Simple Steps
The first step to participating in the CEF market is easy: open a brokerage account. Any brokerage that lets you buy and sell shares will allow you to buy and sell CEFs. And now that many trading platforms require a low (or no) minimum to open an account, along with zero brokerage fees, there’s really no barrier to anyone getting into CEFs.
After you’ve opened your account, you’ll need to select the best CEF for you. There are a lot of things to consider in this step, so be sure to take your time and do your research. (I’ll give you some proven, actionable tips for picking the best of these funds—and avoiding the laggards, in “Indestructible Income.”)
You’ll need to consider what asset class you want to buy into (stocks? municipal bonds? real estate?). Then you’ll need to decide what yield you want (is 6% enough? Want 7%? 9%?). You’ll ideally want to choose a fund that is well managed and trades at a big discount. Here too, research is the key.
Finally, all you need to do is log into your brokerage account, enter the ticker for the fund you’ve chosen—like JRS above—and click “Buy.” Then sit back and let the dividends come to you.
How We’re Playing This “Ruthless Selloff” for 8%+ Dividends
Michael Foster, Investment Strategist
The market pullback we’ve seen in the last couple of weeks really hasn’t come as a surprise to me. The economy is sending what you could—at best—call mixed signals right now. And stocks, as they do in uncertain times, are reacting.
I expect more volatility ahead, so today we’re going to talk about ways to protect ourselves while maintaining the 8%+ dividend streams we’re drawing from our favorite closed-end funds (CEFs).
Instead we’re going to focus on a strategy that’s been around as long as investing itself—diversification—by putting a bit more weight on assets beyond stocks.
That’s what’s great about CEFs: You can buy CEFs that hold a range of assets, such as the two I see as great diversification picks today: the preferred-stock-focused Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), with an 8.4% payout; and the PGIM Global High Yield Fund (GHY), a global bond fund with a 9.6% dividend. (Note that GHY is a holding in our CEF Insider portfolio.)
Regular readers of CEF Insider know we’ve been expecting the pivot we’ve recently seen in stocks and have discussed it in the last couple of issues. After seeing the inevitable recovery from the 2022 mess throughout 2023 and 2024, it was clear that stocks had gotten ahead of themselves.
For now, though, let’s run through the economic picture we have in front of us, and how it tees up growth for GHY and PTA.
US GDP Growth: Still Healthy, but a Little Bit Light
Over the last half-decade, the US economy has been growing at a strong clip, and we’ve settled at around a 2.5% growth rate after inflation (that mention of inflation is important: we’re talking about real growth in the economy, regardless of how high or low inflation is).
This is good news, and it points to a basic stability in the economy that, over the long term, is bullish; America is growing at around 2.5% per year, pretty close to the 3.1% average we’ve seen since 1948 and close enough to the 2.8% average we’ve seen in the last 50 years.
In short, the economy overall isn’t in a bubble, nor is it in a sharp contraction. Things are, well, pretty okay at the moment. That’s worth remembering after a month of ruthless selloff action because it tells us that in the long term, investments—including stock investments—will pay off, as they always have.
Still, markets, as they say, take the escalator up and the elevator down, and it seems like we’ve already gotten in and someone has pushed the “down” button. So what should we do?
There is growing evidence saying that, yes, we should seek alternatives to stocks now.
That’s something we’ve been actively doing in CEF Insider in recent months and will continue to do. This is also where PTA and GHY come in, as we’ll see in a moment.
First on the negative side, there are signs that both wealthy and lower-income consumers are losing confidence in the economy, with a decline similar to what we saw in 2020, when the pandemic hit, and in 2021/2022, due to post-pandemic inflation.
Source: Apollo Academy
This needs to be taken with a grain of salt, however. After all, the economy was fine in 2021, and 2020 was a great year for stocks, even with the pandemic, thanks to the Fed’s intervention. But sentiment leads behavior, and if this negativity gets entrenched, we could see more people cut back on spending.
More Reason Not to Panic
The above chart is where we can see some really good news, though. While it looks like there’s been a big slide in year-over-year retail-sales growth over the last few years, this is wholly due to pandemic effects. In 2021, we saw a huge gain in spending because people could leave their homes again, and the slide in 2022, to a slight decline in January 2024, was a normalizing effect, like a slingshot that was pulled tight and then released before going slack.
And since a year ago, we’ve seen a steady rise in retail sales, to a 4% year-over-year growth rate as of January 2025. That’s a healthy clip, and it signals that most Americans aren’t pulling back quite yet.
Still, there are alternative indicators showing that some parts of the economy are seeing weaker spending. Those include the National Retail Federation’s more real-time indicator showing that retail sales went negative on a month-over-month basis in January and February.
So we’re seeing at least some consumer pullback as some people feel less secure in the future of the United States economy.
Grounding Ourselves With 8%+ Dividends
If you are experiencing whiplash, I get it! Mixed economic data is notoriously tough to drill down into. But the key thing to keep in mind is that everything here points to a “mid-cycle” economy, where America is no longer going gangbusters, but it’s not in a sharp pullback, either.
That said, we are closer to a recession than we’ve been in the last four years. Which is why it’s time to pivot toward high-yielding alternative funds like the two I mentioned earlier.
Two 8%+ Yielding Funds to Diversify Beyond Stocks
Let’s start with the 8.4%-paying Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), which is cheap, with its discount to net asset value (NAV, or the value of its underlying portfolio) coming in at 6.8% as I write this, well below the fund’s 4.9% average discount over the last year. This indicates that the discount’s decline is purely the result of the market panic.
That’s partly because PTA is misunderstood by most investors. It holds preferred stocks, which essentially means it benefits from higher, stable dividends even if stocks fall (since they yield more on average and payouts are prioritized over those of common stock dividends). Preferred-stock funds tend to suffer short-term volatility when stocks first take a hit, along with any other non-government asset, only to recover soon after, when their high dividends attract passive income-seeking investors.
Moreover, PTA benefits if the US economy is seen as weakening because that would push the Fed to cut interest rates. That, in turn, boosts the value of PTA’s portfolio, since preferreds, like bonds, go up in price as rates fall.
Now let’s talk about the PGIM Global High Yield Fund (GHY), with a 9.6% dividend and a discount that’s raced toward par lately: It now trades at just a 0.8% discount to NAV.
I see that modest discount flipping to a premium because GHY, like PTA, will benefit if America’s economy is seen as weakening. That’s because a weaker economy means a weaker dollar, and a weaker dollar would, in turn, boost the value of the foreign bonds in which GHY invests.
In short, both funds should be safe havens for income-hungry investors on more stock-market weakness. That makes both attractive pickups now, with GHY getting the edge from me, due to its bigger yield and “discount momentum.”
Something else I recommend buying when markets are in a panic? Stocks and funds that pay monthly dividends.
Monthly payers are a lifesaver now, because a payout that rolls our way every single month gives us confidence that their managers know they can keep the dividend cash coming our way, no matter what.
After all, they know a dividend is a promise—and they wouldn’t fork one out every month if they weren’t sure they could keep doing so.
That kind of peace of mind is vital today. And the good news is that there are plenty of monthly paying CEFs out there to choose from
Whilst the only consideration for the Snowball is the dividend to buy more Trusts that pay a dividend, if you are lucky and one of your shares which was trading at a discount is bid for you can take your profit and re-invest the profits back into your portfolio earning more cash to buy more Trusts that pay a dividend.
How We’re Playing This “Ruthless Selloff” for 8%+ Dividends
by Michael Foster, Investment Strategist
The market pullback we’ve seen in the last couple of weeks really hasn’t come as a surprise to me. The economy is sending what you could – at best – call mixed signals right now. And stocks, as they do in uncertain times, are reacting.
I expect more volatility ahead, so today we’re going to talk about ways to protect ourselves while maintaining the 8%+ dividend streams we’re drawing from our favorite closed-end funds (CEFs).
Instead we’re going to focus on a strategy that’s been around as long as investing itself – diversification – by putting a bit more weight on assets beyond stocks.
That’s what’s great about CEFs: You can buy CEFs that hold a range of assets, such as the two I see as great diversification picks today: the preferred-stock-focused Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), with an 8.4% payout; and the PGIM Global High Yield Fund (GHY), a global bond fund with a 9.6% dividend. (Note that GHY is a holding in our CEF Insider portfolio.)
Regular readers of CEF Insider know we’ve been expecting the pivot we’ve recently seen in stocks and have discussed it in the last couple of issues. After seeing the inevitable recovery from the 2022 mess throughout 2023 and 2024, it was clear that stocks had gotten ahead of themselves.
And to be sure, the signals the economy is giving off remain murky. If the S&P 500 were to fall to a 10% decline from the start of the year, that may be a great buying opportunity (it’s off about 3% from January 1 as I write this).
For now, though, let’s run through the economic picture we have in front of us, and how it tees up growth for GHY and PTA.
US GDP Growth: Still Healthy, but a Little Bit Light
Over the last half-decade, the US economy has been growing at a strong clip, and we’ve settled at around a 2.5% growth rate after inflation (that mention of inflation is important: we’re talking about real growth in the economy, regardless of how high or low inflation is).
This is good news, and it points to a basic stability in the economy that, over the long term, is bullish; America is growing at around 2.5% per year, pretty close to the 3.1% average we’ve seen since 1948 and close enough to the 2.8% average we’ve seen in the last 50 years.
In short, the economy overall isn’t in a bubble, nor is it in a sharp contraction. Things are, well, pretty okay at the moment. That’s worth remembering after a month of ruthless selloff action because it tells us that in the long term, investments – including stock investments – will pay off, as they always have.
Still, markets, as they say, take the escalator up and the elevator down, and it seems like we’ve already gotten in and someone has pushed the “down” button. So what should we do?
There is growing evidence saying that, yes, we should seek alternatives to stocks now.
That’s something we’ve been actively doing in CEF Insider in recent months and will continue to do. This is also where PTA and GHY come in, as we’ll see in a moment.
First on the negative side, there are signs that both wealthy and lower-income consumers are losing confidence in the economy, with a decline similar to what we saw in 2020, when the pandemic hit, and in 2021/2022, due to post-pandemic inflation.
This needs to be taken with a grain of salt, however. After all, the economy was fine in 2021, and 2020 was a great year for stocks, even with the pandemic, thanks to the Fed’s intervention. But sentiment leads behavior, and if this negativity gets entrenched, we could see more people cut back on spending.
More Reason Not to Panic
In the chart is where we can see some really good news, though. While it looks like there’s been a big slide in year-over-year retail-sales growth over the last few years, this is wholly due to pandemic effects. In 2021, we saw a huge gain in spending because people could leave their homes again, and the slide in 2022, to a slight decline in January 2024, was a normalizing effect, like a slingshot that was pulled tight and then released before going slack.
And since a year ago, we’ve seen a steady rise in retail sales, to a 4% year-over-year growth rate as of January 2025. That’s a healthy clip, and it signals that most Americans aren’t pulling back quite yet.
Still, there are alternative indicators showing that some parts of the economy are seeing weaker spending. Those include the National Retail Federation’s more real-time indicator showing that retail sales went negative on a month-over-month basis in January and February.
So we’re seeing at least some consumer pullback as some people feel less secure in the future of the United States economy.
Grounding Ourselves With 8%+ Dividends
If you are experiencing whiplash, I get it! Mixed economic data is notoriously tough to drill down into. But the key thing to keep in mind is that everything here points to a “mid-cycle” economy, where America is no longer going gangbusters, but it’s not in a sharp pullback, either.
That said, we are closer to a recession than we’ve been in the last four years. Which is why it’s time to pivot toward high-yielding alternative funds like the two I mentioned earlier.
Two 8%+ Yielding Funds to Diversify Beyond Stocks
Let’s start with the 8.4%-paying Cohen & Steers Tax-Advantaged Preferred Securities and Income Fund (PTA), which is cheap, with its discount to net asset value (NAV, or the value of its underlying portfolio) coming in at 6.8% as I write this, well below the fund’s 4.9% average discount over the last year. This indicates that the discount’s decline is purely the result of the market panic.
That’s partly because PTA is misunderstood by most investors. It holds preferred stocks, which essentially means it benefits from higher, stable dividends even if stocks fall (since they yield more on average and payouts are prioritized over those of common stock dividends). Preferred-stock funds tend to suffer short-term volatility when stocks first take a hit, along with any other non-government asset, only to recover soon after, when their high dividends attract passive income-seeking investors.
Moreover, PTA benefits if the US economy is seen as weakening because that would push the Fed to cut interest rates. That, in turn, boosts the value of PTA’s portfolio, since preferreds, like bonds, go up in price as rates fall.
Now let’s talk about the PGIM Global High Yield Fund (GHY), with a 9.6% dividend and a discount that’s raced toward par lately: It now trades at just a 0.8% discount to NAV.
I see that modest discount flipping to a premium because GHY, like PTA, will benefit if America’s economy is seen as weakening. That’s because a weaker economy means a weaker dollar, and a weaker dollar would, in turn, boost the value of the foreign bonds in which GHY invests.
In short, both funds should be safe havens for income-hungry investors on more stock-market weakness. That makes both attractive pickups now, with GHY getting the edge from me, due to its bigger yield and “discount momentum.”
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.Read More
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Like many investors, I appreciate a good blue-chip income share tucked away in my portfolio, quietly generating passive income streams year after year. One FTSE 100 share I own has a stellar track record when it comes to dividends.
Could it be the best FTSE 100 share for an income investor to consider?
High yield but a mixed share price track record
The share in question is British American Tobacco (LSE: BATS). Its dividend yield stands at 7.5%.
That is some distance from being the highest yield in the FTSE 100 index. PhoenixGroup (LSE: PHNX) yields 9.2% and this week announced another increase in its annual dividend per share.
Still, British American’s yield puts it among the higher-yielding shares in the even if it is not top of the board. At a 7.5% yield, £20k invested today would hopefully earn an investor £1,500 in passive income annually.
Outstanding track record of dividend growth
In reality, the passive income could be even higher than £1,500 each year.
British American has grown its dividend per share annually for decades. It has committed to keep doing so. As dividends are key to the investment case, I think the board sees this progressive dividend policy as being of primary importance.
A few other FTSE 100 members, such as Diageo and Spirax,have longer streaks of annual dividend growth. But, again, British American is among the index’s best-performing shares on this metric. Phoenix, incidentally, has grown its dividend over each of the last few years, but cut it less than a decade ago.
Mixed long-term income outlook
No dividend is ever guaranteed to last.
While British American’s track record of regular annual raises is impressive, it is not necessarily indicative of what to expect in future.
The business is highly cash generative. British American owns premium brands like Lucky Strike that give it pricing power. The addictive nature of nicotine also means that British American has pricing power. It has other strengths too, including a global distribution network.
But there is a big caveat here – cigarette demand is declining in many markets. While non-cigarette products like vapes may help British American offset that to some extent, the long-term volume outlook remains unclear – as does the question of whether profit margins can come anything close to, let alone match, those of cigarettes.
An income share to consider, with risks
That matters because it could impact cash flows at the FTSE 100 firm.
If that happens, it could mean the dividend comes under review. Rival Imperial Brands slashed its payout per share in 2020. British American could yet be forced to do the same at some point in future.
So, while its yield and record of dividend growth put it in the top tier of FTSE 100 dividend shares as far as I am concerned, there are significant risks here.
Based on that, I do not think that British American is definitely the best dividend share in the FTSE 100.
One of the best ? Maybe.
I do see significant attractions. I continue to see this as a share income-focussed investors should consider.
These 5 FTSE growth stocks are stinking out my SIPP! Time to sell?
Harvey Jones is happy with the performance of his Self-Invested Personal Pension but unfortunately five growth stocks are casting along shadows.
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Harvey Jones
Image source: Getty Images
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..
Growth stocks are supposed to deliver excitement and reward patience. But right now, five are stinking out my Self-Invested Personal Pension (SIPP). So let’s name and shame them: Diageo, JD Sports Fashion , Glencore, Ocado Group and Aston Martin.
I bought them accross 2023 and early 2024 while consolidating three old pensions into a single pot. My SIPP contains 20 UK stocks and has done well overall, thanks to a steady stream of dividends and some big winners that have doubled in value. But these five have been dead weight.
Glencore‘s down 25% over the last year, Diageo -27%, and JD Sports -30%. Ocado has slumped 45% and Aston Martin has tumbled nearly 55%. These last two have plunged into the FTSE 250.
So what went wrong? And should I cut my losses ?
These UK shares smell bad
Diageo’s once-reliable premium spirits business has hit a rough patch, with sales slowing in key markets such as the US and Latin America.
Inflation has made high-end brands harder to shift, while China’s post-Covid reopening hasn’t sparked the hoped-for recovery. The shares look tempting at today’s lower price, but I’m not expecting a quick shot of growth.
Commodity stocks rise and fall with the global economy and, right now, Glencore’s on the wrong side of that cycle. The slowdown in China has hit demand for key materials while its successful coal business is under fire from net zero campaigners. The stock could bounce back when economic sentiment improves but, for now, it’s a waiting game.
I had doubts about Ocado Group even when I bought in, but the dream of a tech-driven logistics powerhouse was too enticing. As yet, its partnerships with global supermarkets haven’t delivered the expected returns, although Ocado Retail is picking up. I can see a scenario where Ocado turns things around, if I use binoculars.
I bought Aston Martin despite its messy financials, eye-watering debt and bumpy history. The latest models look fantastic, but the company still needs to prove it can operate profitably. Right now, I’m not convinced.
JD Sports is a real pain
Of the fateful five stinkers, JD Sports hurts the most. I had high hopes, and even averaged down as the price dropped. But it’s been a disaster. The company’s ambitious US expansion is backfiring, with the American economy struggling and trade tariffs threatening footwear imports. British consumers aren’t feeling much richer either, which doesn’t help.
JD Sports has a solid business model. It dominates the UK sports retail market and its brand is strong. But the barely-there 0.77% yield makes recent struggles even harder to bear. My faith in the recovery’s fading, but I’m not selling.
The JD Sports share price now looks brilliant value with a price-to-earnings ratio of just 6.4. When sentiment shifts, I think the share price could fly. As with all of these stocks, I’m willing to put up with the stink a while longer.
Aston Martin and Ocado could take years to recover, if they ever do. And while JD Sports, Glencore and Diageo have clearer paths to a rebound, there are no guarantees. For now, I’ll hold my nose and wait. And pick my growth stocks more carefully in future.
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Harvey Jones has positions in Aston Martin Lagonda Global Plc, Diageo Plc, Glencore Plc, JD Sports Fashion, and Ocado Group Plc. The Motley Fool UK has recommended Diageo 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.
