Dividend stocks are shares in companies bought primarily for their dividend payments, issued to investors annually or more often. These payments can seem small at first, but by adding to my position and reinvesting my earnings, I plan to grow my portfolio over time and build a passive income stream.
Rental properties
The cost of renting a home in the UK continues to rise. Tenant prices increased by 2% in 2021, according to the Office for National Statistics. This was the fastest growth rate in the last five years. Given the still constricted number of available homes, I believe rental rates will continue to rise.
However, I would not invest in buy-to-let. Instead, I’d put my money into Residential Secure Income. Not only could this save me money in the long run, but it means I can avoid the upfront costs and workload that buy-to-let can involve. This UK stock is currently yielding a 4.8% dividend. There’s a risk that demand for rental homes could slow or even reverse as new homes are built. This could negatively affect the share price and hurt Residential Secure Income’s ability to pay a dividend. But UK house prices have risen at a surprisingly fast rate in recent months leading me to believe that it could be an investment I want to hold for 10 years.
An insurance company
The cost of Storm Eunice is expected to be around £350m. Massive damage has been inflicted by record winds and may eat into revenues of companies like Admiral Group (LSE: ADM), which is part of the FTSE 100. However, I still expect this income investment to pay out large dividends this year via an estimated 5.8% yield. As climate change continues to take hold over the coming years, extreme weather events will become more frequent. The need for insurance (as well as its cost) is likely to go up as a result. But this does pose a significant risk to insurance businesses too if they end up paying out more than they can take in in premiums.
Admiral has a strong balance sheet though, which should enable it to resist any big cost increases and continue to pay out large dividends to shareholders. According to the company’s most recent financials, its Solvency II ratio was at a huge 209% in June. Admiral, I believe, might also be a good long-term investment because of its quick expansion into new regions.
A 5.1% renewable energy dividend stock
Today, I’m also inclined to buy SSE (LSE: SSE), a FTSE 100 energy provider with a 5.1% dividend. As an income investor, I appreciate this type of dividend investment because of its critical position in energy production. This implies revenues will be stable regardless of the weather and allows SSE to pay out big dividends year after year.
SSE appeals to me as well because of its green energy focus. Oil may be more expensive than ever, but I see this as only a short-term state of affairs. The Ukraine crisis has caused fossil fuel prices to skyrocket. Governments in Europe should now be very aware of the massive security risk fossil fuel reliance represents. At the same time, renewable energy is growing cheaper and more efficient. Even if new Ofgem restrictions might stifle earnings growth in the future, I’d purchase SSE shares.
