Buy-to-let sounds like an interesting investment. There is a certain draw to it, with the investor being able to get a regular income from the property each month. Once the purchase is made, the investor can put their feet up and watch the money roll in, right?
Not exactly. There are financial implications in owning a buy-to-let property that could erode some of your investment.
Take the mortgage fees and interest rates from the bank. Then add on the estate agents listing fees and management fees, and any tax implications. And that is before the boiler breaks, and you have to replace it, or the tenant decides to leave without paying their rent.
I think the better route for personal investors is to own a portion of UK businesses by investing through a Stocks and Shares ISA. Investing in this way has no tax implications, up to a limit currently set at £20,000 a year.
Investing in shares that offer a lumpy dividend could give you a regular income too, without the hassle that comes from owning a buy-to-let property.
I have found two companies that have a long history and offer a generous dividend. Let’s take a look.
Royal Dutch Shell
The Royal Dutch Shell (LSE: RDSA) share price has been damaged by the falling value of oil and gas and the current wider market sell-off. its Q4 underlying profits were 48% lower than the previous year, at $2.9bn
Over the past year, all this news means that the Shell stock price has dropped by 26%.
Despite the falling profits — and the fact that free-cash-flow was 67.7% lower than last year, at $5.4bn — cash generation is substantial.
Shell also has a $25bn share buyback programme under way. I often think that this indicates a company believes its share price is undervalued.
At 11, Shell’s price-to-earnings ratio certainly leads us to this conclusion, although concerns exist over Shell’s expansion into the renewable energy sector and the future of oil and gas.
Investors should take some comfort in Shell’s generous prospective dividend, which currently sits around 8%. This has famously not been cut since the Second World War.
I would consider buying Shell shares as the cornerstone of a dividend portfolio.
HSBC
The HSBC (LSE: HSBA) share price has also dived lately. Some investors’ concerns have stemmed from geopolitical issues, such as the US-China trade war, Brexit and now coronavirus.
The bank is starting a major restructuring programme and is still without a permanent chief executive.
It is worth noting that interest rates play a large part in a bank’s profitability. Therefore the Fed’s recent rate cut may make potential investors shy away from HSBC.
HSBC’s share price has plummeted by 17% in the past year, and the stock now has a prospective dividend yield of 7%.
Noel Quinn, the bank’s interim CEO, has stated the dividend will be maintained during the restructuring programme.
As such, I think HSBC shares could be a great buying opportunity for income investors.
