Forget gold. It pays zero income which is why I buy FTSE dividend stocks instead

I prefer to receive a regular stream of income from top FTSE dividend stocks then sit around wondering if the gold price will rise.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young black woman using a mobile phone in a transport facility

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The gold price has climbed above $1,900 an ounce after a year of doing very little, but I’m not rushing to buy, preferring to build my wealth on top UK dividend stocks instead.

I’ve never been that into gold. Plenty of investors recommend it as a portfolio diversifier, but I have never seen the point. Yes, I know it’s a store of value and all that. I also know that it does not normally correlate with shares, and provides consolation in times of trouble.

Dividend stocks are my bag

Yet none of the arguments have convinced me. I did buy a sprinkling of gold a couple of years back, and just got bored of it sitting there, doing nothing. The precious metal has no uses, except decoration. Investor demand relies purely on sentiment, which as we saw last year, is impossible to predict. Most important from my point of view, gold does not and will never pay me any income.

It took me a few years to understand the value of dividend income, but since I got the message I’ve never looked back. I love those cash payments trickling into my portfolio, making me richer without me having to do anything. They feel much more reliable than random gold price movements, which can just as randomly go down as up. Once a dividend is paid, it’s mine to keep.

I’m at the stage where I still reinvest all my dividend income to buy more stock. So as well as getting richer today, I’m building wealth for the future. Today, for example, I got £84.56 from the Scottish Oriental Smaller Companies Trust, out of the blue. Nice.

Soon the dividends from my recent FTSE 100 stock purchases Lloyds Banking Group, Persimmon, and Rio Tinto will start rolling in. I’m looking forward to it. They will go straight back into my portfolio, to build my stake in those stocks. Which will pay me more dividends, in an ongoing virtuous circle.

By building a portfolio of mostly FTSE 100 dividend aristocrats, I don’t have to worry if the market crashes from time to time. In a strange way, I will welcome it. It means my reinvested dividends will pick up more stock, at the new lower price. Whereas if the gold price falls and stagnates, there is no such compensation.

FTSE 100 income stocks give me growth, too

Dividend stocks offer me further excitement of the shape of capital growth. Persimmon is already up 21.38% since I bought it on 13 October. Rio Tinto has jumped 19.81% since 8 November.

Another recent purchase, Rolls-Royce, isn’t a dividend stock at the moment, but I’m hoping it will soon restore its shareholder payouts. The share price is up 31.01% since my purchase on 1 November.

I bought all three because they looked undervalued on a number of metrics, including the price-to-earnings ratio. It’s early days but so far my strategy is paying off. I can’t work out gold’s real value in the same way, because it has none.

Many financial advisers recommend portfolios invest 5% of 10% in gold. I have no beef with that. I just don’t do it myself.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones holds shares in Lloyds Banking Group, Persimmon, Rio Tinto and Rolls-Royce. The Motley Fool UK has recommended Lloyds Banking Group. 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.

More on Investing Articles

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Analysts say this amazing FTSE 100 stock is a takeover target!

This FTSE 100 stock's one of the worst-performing companies on the index in 2024. So why might other companies want…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »