I’m planning for my retirement by investing in top FTSE 100 dividend-paying stocks. I’ll reinvest my dividends today, and draw them as income when I finally retire. It feels like a pretty solid plan to me.
Naturally, there are dangers. Share prices can fall. Dividends can be cut. Companies can go out of business. I think the rewards far outweigh these risks, but I swing the odds in my favour by doing three things.
The bull run will come
The first is to build a diversified portfolio of at least a dozen stocks, across different sectors of the FTSE 100. That way if one or two fall, hopefully others will compensate by holding firm or climbing. Investing is cyclical. With luck, most of my stock holdings will enjoy their day in the sun at some point.
The second way I protect myself is by only purchasing shares I plan to hold for a minimum of five to 10 years, and ideally decades. By taking such a long-term view, I can afford to sit out the bad times and wait for the good.
Right now, there’s plenty of bad news around. This is the third way I swing things in my favour. I love buying shares when they are cheap, especially when they have fallen through no fault of their own but because of a wider market sell-off.
The banking crisis has given me another opportunity to go shopping for bargain shares, as the FTSE 100 has fallen from its recent peak of 8,000 to around 7,450 at the time of writing. By purchasing shares at a low entry point, then holding on for the long term, with luck I can turbo-charge my total return.
I went on a shopping spree last October, when the FTSE 100 traded around the 6,000 mark, buying Lloyds Banking Group, Persimmon, and Rio Tinto. Until the recent sell-off, I was feeling like a clever clogs, because all their share prices quickly climbed by 10% to 20%. They have since given up a big chunk of their gains, which is what shares do sometimes. However, because I bought them cheap in the first place, I am still up on all my trades.
I’m biding my time
I also bought Rolls-Royce, even though it doesn’t pay a dividend at the moment. I thought it was too cheap to ignore, and at some point, management will hopefully resume shareholder payouts. I got lucky — the stock is up 77% since.
Persimmon and Rio Tinto have both cut their dividends since I bought them, but I wasn’t surprised. They were yielding 20% and 10% respectively. Today, they yield 4.56% and 7.75%. I’m still happy with that.
Last week, I bought asset manager M&G, which was yielding 11.43% of the time. Now I’m crossing my fingers and hoping that it proves sustainable. I don’t know how long today’s buying opportunity will last, but I do know that at some point, the stock market will turn and we’ll be onto the next bull run. I just don’t know when. Nobody ever does.
History shows that markets always recover, given time. I’m pleased with my dividend stock purchases today. With luck, I’ll be even happier when the next bull market gets underway.
