8 dividend super aristocrats to look out for

Consider these dividend super aristocrats that have increased their payout for up to 60 years in a row.

(Image credit: d3sign)

By Dr Mike Tubbs

The term “dividend aristocrats” was coined to describe S&P 500 stocks that had increased their payout to shareholders each year for at least 25 years. Shareholders in such firms have great confidence that their companies can provide a secure and rising income. This steadily rising payout is a sign of strong financials and, usually, of lower share-price volatility. 

On the other hand, aristocrats may produce lower capital gains than growth stocks (which often pay no dividend). Investors also need to check that the company is not paying out too high a proportion of earnings as dividends, and thereby forgoing growth opportunities by reinvesting too little. In 2021 there were 65 dividend aristocrats in the S&P 500. 

Over the previous decade, those stocks had produced a total annual return of 14.3% compared with 14.2% for the index. There were 66 aristocrats in 2023 and 81% of these were from five sectors: industrials (24.1% of the total), consumer staples (22.8%), materials (12.5%), financials (11%) and healthcare (10.4%).

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What are dividend super aristocrats?

While dividend aristocrats boast at least 25 years of continuous dividend growth, some of them have records of over 60 years. We define a dividend super aristocrat (DSA) as a company with at least 40 years of continuous dividend growth; it need not be a member of the S&P 500. 

Examples are Automatic Data Processing (ADP), Coca-Cola, Medtronic and Halma of the UK. ADP, one of the largest business-services outsourcers, has a record of 49 years of continuous dividend increases and a dividend yield of 2.3%. Medtronic, the world’s largest manufacturer of biomedical and implantable devices, has had 47 consecutive years of increases and has a dividend yield of 3.5%. This illustrates the point that DSAs with a modest yield, but a history of strong profitable growth may prove to be as good, or better, than DSAs with higher dividend yields but lower growth potential. 

In 2023, there were 67 dividend aristocrats in the S&P 500. 42 of these were DSAs – of which 10 had achieved between 60 and 68 years of dividend increases. A yield of 0.8% may seem low, but its shares have almost quintupled over the last 10 years, so those who bought a decade ago now have a yield of almost 3.8% on their original investment. 

To find stocks with a consistently rising income, choose from dividend aristocrats or DSAs since their long history of rising dividends gives confidence that they can continue their year-on-year increases. However, it is always worth carrying out some additional checks on aristocrats you are thinking of investing in, for income, to make sure they will be able to keep raising their payouts.

What to check for ‘super aristocrats’

The first key criterion is that the company should still be growing its revenue and profits.

Second, check that there are no factors that could cause growth to cease or reverse. An example might be a tobacco company where health regulations may be tightened to make it more and more difficult to sell its products. 

Third, the proportion of earnings per share (EPS) paid out as dividends – the payout ratio – should not be too large. 

A useful rule of thumb for companies (but not for investment trusts, where it is the payout ratio of the companies in their diversified portfolios that matters) is that the dividend per share (DPS) should be less than half of both EPS and cash flow per share. That ensures that dividends can still be paid and increased modestly even if EPS were to fall during a downturn. It also means that there is enough profit retained after paying dividends to invest in continuing growth. 

Medtronic is an example that breaks this rule since DPS for 2023-2024 was 100% of EPS. However, research and development (R&D) comprised 8.5% of sales, so EPS is calculated after deducting the R&D investment that drives future growth. In addition, the health sector is not cyclical, so Medtronic is unlikely to suffer a substantial downturn in revenue and profits, and has, of course, increased its dividend each year for 47 years. 

Another example is Johnson & Johnson, the pharmaceutical giant, which has raised its dividend for 62 years in a row, but has a DPS of 70.7% of EPS. Again, however, it invests very substantially in R&D (17.7% of sales).

8 dividend super aristocrats for dependable growth

We now give eight examples of potential DSA investments, each with 40-68 years of dividend increases and, in seven cases, yields between 2.3% and 3.4%. This range of yields is fairly safe, since with dividends being increased each year, the yield on an investor’s original investment will be climbing each year and will relatively soon exceed 5%, the highest available on easy-access savings accounts (which offer no capital growth). 

Four of the eight DSAs are US companies, one is a UK company and three are UK-listed investment trusts that are currently selling at a discount to the value of their underlying investments. 

1. Sysco Corporation (NYSE: SYY)
   The first example is Sysco Corporation (NYSE: SYY), the $37 billion market cap global leader in wholesale food and food-equipment distribution to restaurants, hotels, healthcare and educational establishments. Sysco’s annual turnover is $76.4 billion and it boasts 53 years of dividend increases. 

The forward dividend yield is 2.8%, with a payout ratio of 48.8% and the forward price/earnings (p/e) ratio is 15.7. The recent share price is $75 and analysts see scope for the share price to reach $121 in the next five years. In May 2024, Sysco gave a financial outlook for the next three years that foresees sales growth of between 4% and 6% per year, adjusted EPS growth of 6%-8% per year and a total return to shareholders of 9%-11% per year. 

2. Genuine Parts (NYSE: GPC)
   Our second example is Genuine Parts (NYSE: GPC), the $19.7 billion market-capitalisation company selling vehicle and industrial parts, electrical materials and business products in the US, Europe and Australasia. Its turnover is $23 billion and it boasts 68 years of annual dividend increases. 

The forward dividend yield is 2.82%, with a payout ratio of 42.7% and forward p/e of 14.3. The recent price is $144 and analysts’ five-year price target is $225. Full-year 2024 guidance given with the latest results confirmed sales growth of 3%-5%, but increased expected diluted adjusted EPS to $9.80-$9.95, from the previous estimate of $9.70-$9.90. 

3. Automatic Data Processing (Nasdaq: ADP)
   The third example is Automatic Data Processing (Nasdaq: ADP), the world’s largest business-services outsourcer with a market value of $101 billion. Its turnover is $18 billion and it has had 49 years of dividend increases. The forward dividend yield is 2.3% with a payout ratio of 59% and forward p/e of 24.8. The recent price is $249, with a five-year price target of $399. ADP’s latest quarterly results showed revenue up by an annual 7% and EPS up 15%. 
4. Johnson & Johnson (NYSE: JNJ)
   Our fourth US example is Johnson & Johnson (NYSE: JNJ), the $375 billion market-cap pharmaceutical company with a turnover of $85.2 billion. It has a record of 62 years of annual dividend increases and a forward dividend yield of 3.3%, with a payout ratio of 70.7% and forward p/e of 14.8. The high payout ratio is acceptable given the company’s substantial R&D investment (17.7% of sales) for growth and a long record of increasing dividends. The recent price is $156 and the five-year price target is $243. Full-year guidance given with the latest results is for sales growth of 5.5%-6% and adjusted diluted EPS growth of 6.6%-8.1%. 
5. Halma (LSE: HLMA)
   Our fifth example is Halma (LSE: HLMA), the £10 billion market-cap FTSE-100 company with a range of products for safety, environmental analysis and health. Its turnover is £2 billion and it has an incredible record of 45 years of annual dividend increases, all of 5% or more. Its forward dividend yield is 0.8%, with a payout ratio of only 29% and forward p/e of 30. The full-year results released in June 2024 showed record profits for the 21st consecutive year, with sales and pre-tax profit both up by 10% and the dividend up by 7%. The shares have gained 16% in the past year.

The final three examples are UK-listed investment trusts – City of London Investment Trust (LSE: CTY), The Scottish American Investment Company (LSE: SAIN) and the Witan Investment Trust (LSE: WTAN), which is merging with Alliance Trust. They all have extensive portfolios of investments, providing corporate, but not necessarily geographical, diversification. 

6. City of London
   City of London has a 58-year history of increasing dividends. About 85% of the fund is in UK shares, with the top-10 holdings including BAE Systems, Shell, HSBC and AstraZeneca. The forward yield is 4.7% and the trailing p/e 17.5. The fund sells at a discount of 0.6% to net asset value (NAV). The shares are up by 10.4% in a year, but 1.3% over five years. 
7. Scottish American
   Scottish American has a 50-year record of increasing dividends, with 36% of the fund in North American equities and 35% in European ones. Top-10 holdings include Novo Nordisk and Microsoft and TSMC Taiwan Semiconductor Manufacturing Company (TSMC). The forward yield is 2.7% and the historic p/e 8.8. The trust sells at a discount to NAV of 8.2%. The shares have gained 24.3% in five years. 
8. Witan
   Witan has a 50-year record of dividend increases, with 39% of the fund in North America and 42% in Europe. Top-20 holdings include Amazon, Unilever, Diageo, Microsoft, Nvidia, Nintendo and Alphabet. The forward yield is 2.2% and the trailing p/e 9.7. The trust sells at a discount of 5.2%. The shares are up 20.4% over one year and 22.4% over the last five.  

For investors requiring the highest immediate yields, together with the confidence that a record of over 50 years of consecutive dividend increases brings, City of London (with a yield of 4.7%, but a modest growth record) and Johnson & Johnson (yielding 3.3% and a five-year share-price target 56% above current levels) are probable choices. 

Sysco (with a yield of 2.8% and a target of 61% above today’s price), or Genuine Parts (2.82% and a target of 56% above) have yields of just under 3% and good growth prospects. Halma (yielding 0.8%) is a longer-term prospect with its excellent history of share price and dividend growth.

Foresight Solar Fund Limited

(the “Company”, “Foresight Solar” or “FSFL”)

Q2 2024 Net Asset Value and Trading Update

Foresight Solar, a sustainability-focused fund investing in solar and battery storage assets in the UK and internationally, announces that its unaudited net asset value (NAV) was £656.8 million at 30 June 2024 (31 March 2024: £665.0 million). This results in a NAV per Ordinary Share of 114.9 pence (31 March 2024: 114.7 pence per share).

Highlights:

·    Near and long-term power price forecasts for the UK and Spain trended up in the second quarter, leading to a positive impact on NAV.

·    UK electricity production recovered after the wettest first quarter on record: irradiation was 2.7% below budget and generation was 4.3% lower than forecast in the first half. 

·    Active treasury management reduced RCF costs by 80bps, equivalent to potential interest savings of £360,000 to the end of the year. The RCF was £74.5 million drawn at 30 June 2024.

·    The board increased the buyback programme by up to £10 million, taking the total to up to £50 million. Repurchases have added a cumulative 1.9pps of NAV accretion.

Summary of key NAV drivers:

Item	p/share movement
NAV on 31 March 2024	114.7p
Power price forecasts	+0.7
Project actuals	-0.6
Share buyback programme	+0.4
Other movements	-0.3
NAV on 30 June 2024	114.9p

As consultants updated their assumptions, UK power price forecasts reversed a five-quarter downward trend and increased in the three months to 30 June 2024. The position was similar in Spain, with higher near and long-term forecasts, whilst price forecasts for Australia were marginally down relative to the previous quarter. In aggregate, these moves resulted in a positive impact to NAV of 0.7 pence per share.

Foresight Solar continued its accretive share buyback programme, repurchasing a further 7.9 million shares during the second quarter and delivering an additional 0.4pps of NAV accretion to shareholders. FSFL has now deployed over £35 million of its £40 million initial allocation, resulting in a cumulative 1.9pps uplift to NAV since the Company began buying back its shares in May 2023.

Other movements, totalling a downside net impact of 0.3pps to NAV, included a small foreign exchange movement; higher insurance costs; returning the Lorca portfolio to a DCF valuation following the partial divestment in Q4 2023; and a minor upside from rebalancing discount rates across the Australian portfolio to reflect current market conditions.

Trading update

Improved weather and good availability from April to June in the UK helped FSFL recover from the wettest first quarter on record. The better conditions, however, were not enough to completely mitigate the negative impact of the rainy start to the year. At the end of June, cumulative irradiation for the six months was 2.7% below budget and production was 4.3% lower than expected in FSFL’s main market due to unplanned network outages and a small number of inverter issues.

Spain and Australia also suffered from poor weather and network outages. Overall, production for the global portfolio was 7.1% below forecast for the first half of the year – a considerable improvement from Q1, when it was 15.6% behind budget.

Notwithstanding the below-budget start of 2024, Foresight Solar’s active power price hedging strategy ensured another quarter of steady cash flow from operations, with cash distributions only modestly down against budget. The directors are confident the Company will meet its target dividend of 8.0pps for the year with a slightly revised net dividend cover of 1.4x.

The investment manager continued to forward-fix electricity sales at attractive rates to provide revenue visibility for the medium term. Overall, the proportion of contracted revenue for the global portfolio now stands at 89% for 2024, 83% for 2025 and 63% for 2026.

Capital allocation

The board and the investment manager recognise the discount that persists between FSFL’s net asset value and its share price. The directors have thus allocated up to a further £10 million to Foresight Solar’s ongoing share buyback programme, bringing its total to a potential £50 million and extending the renewables sector’s largest initiative relative to NAV.

Demonstrating the Company’s commitment to a disciplined capital allocation approach, FSFL didn’t make any large capital deployments in the period. The divestment programme continues to move ahead, and more details will be provided in the interim report. The board remains focused on returning capital to shareholders and reducing variable-rate debt costs.

NextEnergy Solar Fund Limited

(“NESF” or the “Company”)

Interim Dividend Declaration

NextEnergy Solar Fund, a leading specialist investor in solar energy and energy storage, is pleased to announce its first interim dividend of 2.10 pence per Ordinary Share for the quarter ended 30 June 2024, in line with its previously stated target of paying dividends of 8.43p for the year ended 31 March 2025.  

The interim dividend of 2.10 pence will be paid on 30 September 2024 to shareholders on the register as at the close of business on 16 August 2024. The ex-dividend date is 15 August 2024.

August £426.00

September £935.00

October £658.00

Quarter total £2,019.00

(All subject to change)

Additions to the Snowball, shares bought in SUPR after the xd date.

Cash to re-invest £8,348.35.

August dividends.

All baby steps.

GRS but GR.

£100k today or a £5k passive income?

I know which I’d prefer © Provided by The Motley Fool

by Ken Hall

These days it feels like everyone is hunting for a passive income stream. A rising cost of living, stagnating wages, and desire to do and see more are making life expensive for me.

One thing that really got me thinking is compound interest. I thought I’d dive in and see which would be better for me: £100k today (by some miracle!) or a £5k annual income.

Building a £5k passive income

First thing’s first, let’s think about where this money could come from. It could be from a side hustle, or in my case, I think some savvy FTSE 100 investments could do the trick.

The Footsie has an average 3.6% dividend yield right now. That means a £10,000 investment matching the large-cap index would give you £360 per year in dividends on average.

That’s pretty handy, given this would also be diversified amongst the largest 100 UK stocks. That includes well-known companies like Lloyds, J Sainsbury and BAE Systems.

By size it’s the largest at over £12bn. It is also one of the cheapest with a 0.07% ongoing charge and has proven to be popular with passive investors.

Assuming the money is available to invest, the question then becomes: would I prefer a £5k annual income or a £100k lump sum today?

The magic of compound interest

Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

Let’s say I had another 25 years until retirement. The magic of compound interest means that £5k annual income, if reinvested for 25 years at 3.6%, would be worth a lot more than £100k today. Plus, I’d be more likely to spend that lump sum in any case!

In fact, assuming annual reinvestment, that portfolio could grow from £139,000 to £349,000 by year 25. That represents £210,000 in gains just from reinvesting that annual yield.

By year 25, that portfolio would be throwing off over £12k per year in passive income. By then, I just might be ready to start spending on the finer things in life.

Is it possible?

Of course, this is a simplified example to show the power of compound interest and investing discipline. There’s no guarantee that the Footsie will continue to yield 3.6%, and the stock market will almost inevitably have its share of ups and downs in the next 25 years.

However, I think with some hard work and good investing, I can use dividend shares to build a passive income and set myself up for the future.

The post £100k today or a £5k passive income? I know which I’d prefer appeared first on The Motley Fool UK.

££££££££££££££££

7k compounded at 7% for 25 years would equal a yield of 43% and u retain your capital, better if u can add fuel to fire.

I’ve bought back the SDCL shares sold at a ‘profit’ 1581 shares for 1k

Things to consider, your plan will be different to my plan based on your risk reward profile.

One. With compound growth u should make more in your final few years than in all the early years, that’s why life-styling is such a bad idea.

Two. 7k of earned dividends doubles in ten years if u can reinvest the dividends at 7%. Usually there is one or two unloved Trusts to buy.

Three. Belt and braces, u can invest for growth (capital gain) but better with a dividend, just in case Mr. Market doesn’t agree with u at the time.

Four. With a dividend re-investment plan u can welcome falling markets because as the price falls the available yield rises.

Five. Your plan should include an element of Get Rich Slow.

Six. If u want ‘safer’ Trusts in your portfolio like CTY u can pair trade CTY with a higher yielder to earn 7%.

Seven. The longer u earn dividends the closer u will get to the Holy Grail of owning a Trust that pays u a regular dividend and sits in your account at zero, zilch, nothing.

Eight. Stick to your plan until sticks to u.

Nine. Mr. Market has given anyone a great starting point to start their journey.

Ten. GL

Kiplinger

Retirement Income Funds to Keep Cash Flowing In Your Golden Years

Story by Nellie S. Huang

Ah, retirement. No more snarled commutes, demanding bosses or tight deadlines. But after saving for decades, you now have to figure out how to turn your nest egg into a cash spigot. “It’s a big moment going from earning an income to not earning an income. There’s a lot of emotion and change,” says Jeffrey DeMaso, editor of The Independent Vanguard Adviser, a newsletter for Vanguard fund investors.

Re-engineering your portfolio from accumulation mode to decumulation mode can be daunting. You’ll have to get a handle on how much you need for essential expenses, and you’ll need a strategy to cover them for the rest of your life. “The biggest fear people have about retirement is running out of money,” says Anne Ackerley, head of retirement business at BlackRock.
Fortunately, a variety of products and services – some new, others new-ish – are designed to help people spend and invest their savings wisely in retirement. Some are available only in certain workplace retirement savings plans, so access depends on whether it’s offered in your plan. Other funds or services are available to all individual investors. We’ll walk you through some of the options. All data and returns are through November 30, unless otherwise noted.

Look for retirement income strategies in your 401(k)
The first place to look for help is your workplace retirement plan. The SECURE Act, a broad package of changes to rules governing retirement and retirement savings plans, eased the way for corporate retirement plans to include annuities, which are insurance products that pay fixed annual sums, typically for life. In response, some 401(k) plans are beginning to offer target-date strategies with an annuity component that offers a paycheck-like experience in retirement.

Like their conventional target-date-fund predecessors, target-date-plus-annuity strategies invest in multiple asset classes that shift over time to a more conservative mix as you age. The twist is, at a certain point along that glidepath some of your contributions are directed to an annuity. BlackRock’s LifePath Paycheck and Nuveen’s Lifecycle Income series are two examples. Both will be available in some retirement plans this year.

The way the annuity portion works varies. Nuveen’s funds invest a portion of the bond portfolio in an annuity at the start of the series’ glidepath, 45 years before retirement. The annuity allocation starts at 2.5% of the portfolio and increases to 40% at the end of the glidepath. Allocations to the annuity contract included in BlackRock’s LifePath Paycheck series, by contrast, start when investors hit age 55. The annuity makes up 8% of the overall portfolio to start and climbs to 30% over the next 10 years. In both series, the annuities have the risk-and-return profile of a broad-market bond fund.

Both the BlackRock LifePath Paycheck and the Nuveen Lifecycle Income series allow investors to choose when to turn on the income. At what age those payments can begin, however, depends on the strategy. Investors can also choose never to turn on the income feature if they don’t want or need it. Plus, the annuities are institutionally priced (read: less expensive). There’s no transaction fee or sales charge related to the annuity part of the target-date strategies, though there is a fee that the insurance company pockets. According to Nuveen, it is reflected in the annuity payout.

Expect more retirement funds with annuities to appear in workplace retirement plans. “Within 10 years, target-date funds with income are going to be the main thing in retirement plans,” says BlackRock’s Ackerley.

Not all retirement income strategies in 401(k) plans are tied to annuities. The Fidelity Managed Retirement target-date funds employ a cash-withdrawal strategy that starts at 4% of assets and gradually increases over time as you age. Choose the fund that aligns closest to the year you turn 70. Experts set the glidepath and do the ongoing asset allocation for these 401(k) offerings, as well as create a payout schedule for you. “The idea is to provide stable payments and still have a remaining balance,” says Sarah O’Toole, a Fidelity institutional portfolio manager.

T. Rowe Price has a 401(k) plan offering called Retirement Income 2020 that aims to deliver a 4%-to-5% payout a year in monthly distributions, but it depends on the fund’s return. There are only two vintages so far: 2020 and the soon-to-launch 2025. “When the portfolio does well, the payout goes up. When it doesn’t, the payout goes down a bit,” says fund comanager Andrew Jacobs van Merlen. These strategies are also available to retail investors as mutual funds (more on them later).

Retirement income funds for everyone
If your 401(k) plan doesn’t offer retirement income funds like the ones we just mentioned, or a defined-contribution plan isn’t available to you, you have a handful of mutual funds and financial services to consider. Unfortunately, none feature the guaranteed income of an annuity.

We should note that retirement income funds aren’t a new idea. Several firms, including Fidelity and Vanguard, launched managed-payout funds in 2007 and 2008 that promised to provide a steady income stream. The timing was terrible (around the arrival of the Global Financial Crisis). The funds didn’t catch on.

That said, the stars are aligning for retirement income funds today: More retirees are looking for help managing income, interest rates are higher, and the stock market is recovering.

We don’t expect you to put all your eggs in one basket – or one fund – to create a workable retirement income strategy. In most cases, retirees should consider generating cash flow from multiple strategies and sources. “You’ll need an array of tools and products,” says T. Rowe Price’s Jacobs van Merlen, taking into consideration the risks you’re willing to take, how long you’ll live, and how much you’ve already saved, among other things. Bear that in mind as you peruse the following options.

The aforementioned T. Rowe Price Retirement Income 2020 (symbol TRLAX, expense ratio 0.53%) is available as a mutual fund to individual investors. A 2025 version will launch this year. The minimum investment for either fund is $25,000.

The managers aim to generate a 4%-to-5% payout of the fund’s average net asset value over the past five years, but the monthly distribution will vary from year to year depending on the fund’s performance. (For its first five years, the Income 2025 fund will use the average net asset value of T. Rowe Price’s standard Retirement 2025 target-date fund to calculate the payout rate.) The goal is to “live off the income of the portfolio without dipping into the principal,” says Jacobs van Merlen, though there’s no guarantee on that front. So far, the 2020 fund’s annualized return since inception in mid 2017 is 5.9%, which falls in line with the fund’s annual target payout.

At last report, Retirement Income 2020 held roughly 50% in stocks and 50% in bonds, cash and other assets. The underlying funds include some of the firm’s longtime winners, such as T. Rowe Price Growth Stock, Value and Mid-Cap Growth.

Schwab Monthly Income funds – there are three – launched in March 2008 and have been tweaked over time. Their main objective is to provide a monthly income stream, although payouts can vary from year to year, and even from month to month.

Conservative investors who want to preserve principal should opt for the repetitively named Schwab Monthly Income Income Payout (SWLRX, 0.21%), which holds 30% in stocks and 70% in bonds. Monthly payouts are limited to interest and dividend payments from the portfolio’s underlying funds. In a normal interest rate environment, investors might get an annual payout rate of 3% to 5%; they’d get less in low-rate environments. Over the 12-month period ending in October, the fund’s payout rate was 4.15%. But in low-rate environments, the payout rate was lower (for the calendar year 2022, it was 2.42%).

Moderate-risk investors can choose between the Schwab Monthly Income Target Payout (SWJRX, 0.25%) and the Schwab Monthly Income Flexible Payout (SWKRX, 0.25%). Both hold exchange-traded funds, with 50% of assets in stock funds and 50% in bond funds.

Target Payout aims for a steady annual payout of roughly 5%, though it could be higher or lower. The fund’s payout rate was 3.08% in 2022, and for the 12-month period through October it was 5.39%.

Flexible Payout is designed for investors who can deal with more flexibility in their income stream. The fund aims for an annual payout between 4% and 6%, depending on fund performance and the market environment. In the tough stock and bond market of 2022, the fund paid out 2.96%. But for the year ending in October, the fund’s payout rate was 5.19%. Payments from both funds may include some return of capital.

The catch with these funds is that overall returns have been ho-hum. That may be an acceptable trade-off for investors who want a monthly income stream, but in lean years, you will probably get more capital returned to make that happen. Over the past five years, Flexible Payout’s annualized 2.6% return lags 91% of its peers (moderately conservative allocation funds). Income Payout’s five-year return, 1.9%, lags 78% of its peers (conservative allocation funds).

A trio of American Funds Retirement Income Portfolios are worth a look for investors who are less dependent on a regular check and seek a little more capital appreciation. These funds make quarterly distributions and have no payout target because they’re designed to be a resource for discretionary spending, not necessary expenses. But the experts behind the funds suggest ranges for annual withdrawal rates for each portfolio. In rough markets, for instance, investors should consider lowering their withdrawal rates.

Investors in the series’ most conservative portfolio, American Funds Retirement Income Portfolio – Conservative (FAFWX, 0.64%, yield 3.28%), might consider a suggested annual withdrawal rate of 2.75% to 3.50% of their assets in the fund. The portfolio holds almost 40% in stocks and 60% in bonds and cash. The ideal withdrawal rate for the moderate fund, American Funds Retirement Income Portfolio – Moderate (FBFWX, 0.68%, 3.02%), which holds roughly 50% in stocks and 50% in bonds, ranges between 3.00% and 3.75%. And the most aggressive strategy, the American Funds Retirement Income Portfolio – Enhanced (FCFWX, 0.69%, 2.79%), which holds 60% in stocks, has a suggested withdrawal range of 3.25% to 4.00%.

These portfolios, which hold some of American’s best mutual funds, including American Balanced, have annualized returns over the past five years that are middling at best. But they have experienced below-average risk relative to peer funds. In 2022, when stocks fell 18% and bonds declined 13%, the Conservative and Moderate funds both lost 10.1%; Enhanced lost 11.1%. Those returns ranked among the top 20% of their peers or better.

Finally, investors interested in a digital advisory service might consider Schwab Intelligent Portfolios. The service helps retirees generate a check from their investment portfolio through a feature called Intelligent Income. Based on the sum of money you invest with the robo service, Intelligent Income helps you figure out how much you need to withdraw and how to invest to stay on track, and it lets you set up automatic checks from your account, paid monthly, quarterly or once a year.

You can stop, start or adjust the payout at any time, says Kristina Turczyn, head of digital advice and wealth solutions at Charles Schwab. “We wanted to offer an easy way to automate the process and generate a paycheck from your own investment portfolio.” There’s no advisory fee for Intelligent Portfolios and no additional fee for Intelligent Income.

These 2 dividend stocks look like no-brainer buys despite challenges ahead.

by Sumayya Mansoor
The Motley Fool

Two dividend stocks I feel could be savvy buys for my holdings are Impact Healthcare REIT (LSE: IHR) and Diageo (LSE: DGE).

Here’s why I’d be willing to buy some shares when I next have some investable funds, despite credible challenges to the payouts. And it is always worth remembering that dividends are never guaranteed.

Healthcare properties
Impact Healthcare is set up as a real estate investment trust (REIT), meaning it must return 90% of profits to shareholders. The firm specialises in care homes, and ties its tenants down to long-term, inflation linked contracts.

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.
At present, Impact owns and operates 138 care homes across the UK. Its potential to grow earnings and returns is exciting for me as the UK population soars and will require care in the years to come.

From a fundamental view, the shares offer a dividend yield of 7.9%. For context, the FTSE 100 average is closer to 3.5%. Furthermore, the shares look good value for money on a forward price-to-earnings ratio of 8.5.

Moving to the bear case, issues in the commercial property sector have occurred due to higher interest rates. These have hurt net asset values (NAVs). However, the bigger challenge Impact faces is potential staff shortages in the care sector. It’s all well and good growing its portfolio and owning many care homes, but they can’t operate without qualified staff. I’ll keep an eye on this, but I believe it won’t be a deal breaker when it comes to shareholder value in the longer term.

Cheers to that.
Premium alcoholic drinks giant Diageo really doesn’t need much of an introduction, in my view at least. As the owner of some of the world’s favourite tipples, with a vast presence, immense brand power, and fantastic track record, I reckon the shares are a no-brainer buy for my portfolio.

Diageo has been coming to terms with economic turbulence in recent months, and this has been reflected in its share price fall, with performance being impacted too. High inflation and interest rates have left many consumers struggling with higher essential bills. Luxuries like premium alcohol aren’t atop the priority list of most, and sales have been falling, especially in the Caribbean and Latin America, two key growth markets.

I reckon these short-term challenges may distort the view of what looks to me like an excellent stock. Firstly, there’s no denying Diageo’s brand power, and there aren’t many firms in its industry that can boast a presence of selling products in 180 countries globally. Plus, as interest rates come down, I reckon spending will increase once more. This could help boost earnings and returns.

The beauty of the recent dip is it has allowed investors like me to gain a better entry point. At present, Diageo shares trade on a price-to-earnings ratio of 16. This is lower than its recent average.

Now for the cherry on top. A dividend yield of 3.8% may not sound mammoth. However, as a Foolish investor, I’m more concerned about consistent payouts. Well, Diageo is nothing if not consistent. The firm has paid a dividend for close to 40 years in a row. It has also increased it for many of those, giving it the deserved moniker of Dividend Aristocrat. However, I do understand that the past isn’t a guarantee of the future.

The post These 2 dividend stocks look like no-brainer buys despite challenges ahead appeared first on The Motley Fool UK.

££££££££££££

Mr. Market hasn’t presented any ‘bargains,’ yet so I might have to re-invest the Snowball funds, mostly in BSIF and collect the next dividend and then re-appraise.

by Mark David Hartley

I’m not going to sugarcoat it. 

Building a lifelong passive income strategy is not easy. If you really want to retire comfortably you’ll have to put in the work — and the money — to make it happen. 

Shortcuts and get-rich-quick schemes seldom work. 

With that said, this is my three-step strategy to building a passive income stream to retire in style.

Step 1: Open a Stocks and Shares ISA

I don’t need a Stocks and Shares ISA to begin investing but it’ll certainly make my money go further.

See, with a Stocks and Shares ISA, I can invest up to £20,000 a year tax-free.

Depending on my returns, the ISA fees are likely to pale in comparison to the amount the tax break saves me. There are several options available for UK citizens to open a Stocks and Shares ISA and start investing today.

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.

Step 2: Invest in a portfolio of high-yield dividend shares

So what shares should I put in my ISA?

While it might seem attractive, it’s usually best to avoid ‘flavour of the month’ shares like booming tech stocks. These might bring short-term gains but usually lack resilience and seldom pay dividends.

Well-established companies that pay high-yield dividends offer more consistent returns even when markets are stagnant.

A good example that has served me well is Vodafone Group (LSE:VOD). The 40-year-old telecoms firm pays a huge 10% dividend yield with consistent semi-annual payments over the past 10 years.

In its latest 2023 results, the company reported an impressive net profit margin of 23.59%, with earnings per share (EPS) at 39p. Even though the share price has fallen 48% in the past five years, the dividend yield still makes Vodafone attractive. With the price now the lowest it’s been since the 90s, analysts estimate Vodafone shares are trading at almost 70% below fair value.

It’s important I create a diversified portfolio of shares, so I’d add some companies with lower dividends but a more stable share price. I could also add some ETFs to offset unexpected market volatility. 

Step 3: Reinvest dividends and contribute further

For the final step, it’s important to ensure I benefit from the magic of compound returns. Using a dividend reinvestment plan (DRIP), I would reinvest my dividends and maximise the value of my investment.

More importantly, I should continue to make some monthly contributions to my investment. Even just a few hundred pounds a month can make a real difference in the long term.

For example, a £10,000 portfolio with an average 5% dividend yield and 5% share price increase per year would grow to around £16,000 after 10 years.

The same investment with a DRIP and a £200 monthly contribution would net me almost £65,000 in the same period. In 30 years, it would be up to £580,000, paying me £26,770 a year in passive income.

In reality, dividend yields and share prices fluctuate regularly, so final amounts could differ vastly. However, these are conservative figures that an average investor like myself could typically expect to achieve.

The post My 3-step strategy to retire early with life-long passive income appeared first on The Motley Fool UK.