I own a portfolio of dividend shares in my Stocks and Shares ISA. I like to hold these assets inside the tax-efficient wrapper as any income or capital gains earned on investments held in an ISA do not attract tax. This could potentially save me thousands of pounds every year.
Unfortunately, finding high-quality income investments is not as easy as opening an ISA in the first place. However, I think all the companies listed below are attractive income investments with dividend yields of 5%, or more.
As such, I would acquire all of these stocks for my portfolio today.
Dividend shares for income
I believe one of the best sectors on the market for income is the property sector. With that in mind, I would acquire both Residential Secure Income and the Impact Healthcare Reit.
Both of these property-focused investment companies target different areas of the market. The former focuses on acquiring assets in the social housing sector with long term leases. The latter acquires healthcare properties.
By spreading my cash across both organisations, I believe I can build diversification into my portfolio. As both also offer dividend yields of around 5%, I will not lose any income due to this diversified strategy.
I would also add financial services companies Ashmore Group and IG Group to my portfolio. These shares support dividend yields of around 5.6%. They are also active in different sectors of the financial services industry. IG deals with trading and spread betting. Meanwhile, Ashmore focuses more on fund management.
I like these companies because they are both leaders in their respective sectors. This gives them economies of scale and a competitive advantage over peers. I think these advantages should help both businesses stand out in the competitive financial services sector, ultimately supporting their dividends.
The final company I would buy for my portfolio of dividend shares is BAE Systems. What I like about this business is that it operates in a highly regulated and controlled sector. The defence industry is effectively controlled by the government, and BAE is its largest customer.
It seems highly unlikely any competitor will take market share from the business, considering its existing reputation with the Ministry of Defence.
BAE also has an extensive order backlog, guaranteeing several years of sales. This gives management significant visibility over growth for the next few years.
At the time of writing, the stock supports a dividend yield of 4.4%.
I think dividend shares are an essential part of my portfolio, but investing in these stocks can be risky. Dividends are paid out of company profits. Therefore, if these suddenly collapse, management may have no choice but to slash the payouts. In this situation, I could end up with massive capital losses if the market decides to sell the stock following a dividend cut.
This is the leading risk associated with a dividend investing approach, and it is something I will have to deal with in my portfolio.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.