All the market volatility during 2022 has made dividend shares look even more attractive to me. Although I don’t have spare funds to invest right now.
While in many cases share prices have been pushed lower leading to higher yields, lots of underlying businesses remain robust. And that’s a great combination.
Compounding dividend returns
Meanwhile, the whole concept of investing for dividends looks like a good way to proceed for the long term. Much of the return from shares can arrive as income via dividends. So simply reinvesting them along the way can lead to a compounding effect that will likely increase the value of a portfolio over time.
Positive outcomes are never guaranteed though. And that’s because all shares carry risks as well as upside potential. And businesses can run into operational problems at any time.
However, targeting dividends may work well. After all, the alternative with stocks and shares is to focus on capital growth from rising share prices. But that’s only one way that a successful business can reward its shareholders. And over the past few years, sustainable capital growth has been hard to achieve.
But I think a dividend-focused strategy works best when the underlying business is defensive in nature. Indeed, cyclical businesses and sectors tend to deliver a famine-or-feast outcome for investors. And that can lead to volatile share price movements and dividends that are here today and gone tomorrow. However, defensive enterprises tend to be less sensitive to general economic cycles.
Defensive stocks with big yields
I prefer companies like those in the supermarket sector, such as Tesco and J Sainsbury. There’s been a lot of competition from the many participants fighting for our grocery pounds. But the old-guard supermarkets have been up to the challenge. And my guess is they’ll be around long enough to deliver a decent long-term return for their shareholders.
I’m also keen on energy company National Grid with its place at the heart of the UK’s electricity infrastructure. The business seems likely to benefit from the swing to clean energy.
The firm’s operations on both sides of the Atlantic could power a rising stream of dividends for shareholders in the coming years. Although the industry faces much regulatory scrutiny. And National Grid is compelled to reinvest a lot of capital to maintain and improve its energy systems.
One consequence of that is a big debt pile. Although, so far, the company has kept up a steady progressive dividend policy.
Top financial indicators
Meanwhile, some of the best financial indicators can be found with the smoking products makers, such as British American Tobacco and Imperial Brands. However, the sector faces a lot of regulatory attention and taxes. And cigarette volumes are in long-term decline.
Nevertheless, both companies have been developing their businesses to supply less-harmful products for smokers such as vaping. But despite the chunky dividends, the industry may not appeal to some investors because of ethical concerns.
Finally, I reckon trading platform provider IG Group and comparison website operator Moneysupermarket.com operate businesses with defensive qualities. However, there’s competition in both industries and their services may go out of fashion with consumers.
Nevertheless, they have chunky yields and strong records of dividend progression. And they attract me now to hold for 2023 and beyond.
