I have been thinking about how to boost my passive income streams. One way to do that could be buying more dividend shares for my portfolio. At the moment there are some high-yield shares selling cheaply compared to what I think they are worth.
Here’s one I would happily add to my portfolio this June if I had spare money to invest.
Early stage investor
The share in question is venture capital trust Income & Growth (LSE: IGV).
Basically, the business model is that the trust invests in a range of small and medium-sized businesses that are still in a growth phase.
Inevitably some perform better than others. But by holding and sometimes increasing its stake over the course of a few years, the trust hopes to benefit from an increased valuation of each business in which it invests.
By selling its stake in some businesses for more than it paid, Income & Growth is able to fund dividends to its own shareholders.
A worsening economy poses risks to fragile young businesses. That could hurt profits at Income & Growth. That may explain why the shares have lately been trading around their 12-month low.
That has had the effect of pushing up the dividend yield. Income & Growth now sits firmly in the high-yield bracket, offering 11.4%.
Can that continue?
Based on the timing of its share sales and performance of the companies it backs, the trust’s dividend has been inconsistent.
But the 4p interim dividend paid out last week is just the latest in a steady line of juicy shareholder distributions. In the past five years, the dividends per share have totalled 42p. That compares to the current share price of around 70p.
I see Income & Growth as having a proven business model and presenting an ongoing income opportunity. Its current share price is below its net asset value. I see it as a potential bargain for my portfolio.
As the share price fall over the past year suggests, investors are nervous about the negative impact a weak economy may have on Income & Growth’s dividend potential.
But I think that risk is already reflected in the share price. As a long-term investor, I am thinking about the outlook over the coming years if I buy the shares today. Hopefully I could benefit from the high yield currently offered. Even if dividends are lower in future, the 11.4% yield means they could be cut but still remain substantial.
On top of that, given the discount to net asset value, I see potential for long-term share price growth once the economy picks up again in future.
So I would be happy to tuck Income & Growth into my portfolio now for the coming years.