This February, I’ve been researching companies that offer attractive passive income, and Schroders (LSE:SDR) looks like it might be one of them.
With a nice yield of 5.2% and no reductions to this in over five years, I’m diving in to find out more.
My goal? Monthly dividend payments of £200.
My path to the £200-a-month goal
To get the equivalent of £200 in dividend payments every month, I’d need £46,066 to buy 11,154 shares in Schroders. I know that’s a lot to save, but I think it’s not impossible.
In fact, investing just £4,500 and an extra £50 per month over 15 years at a market average 11% compound annual return generates £45,990.
So, the big message to myself here is to keep saving. Warren Buffett has famously mentioned that the earlier a person starts to invest, the better off they are later.
Buffett made about 99% of his wealth after his 50th birthday. That’s not because he started late, that’s because of the power of compound interest over time.
Now, just because I’d saved around £45K, that doesn’t mean I’d invest it all in one dividend stock. I might choose to keep on compounding in growth shares. But I could also pick a diversified portfolio of dividend-paying companies to generate a stable stream of residual income to spend.
The compound interest might not be as good, but the stability of money in my pocket each month is what really matters here.
A closer look at Schroders
Schroders is in my industry. Being an asset management firm, I’d feel right at home if I invested in it.
After all, it’s one of the planet’s most prominent financial management companies, founded in 1804. The company has about 50% of its clients in the UK, with 20% in continental Europe and a further 20% in Asia.
It purchased the Cazenove private clients business from JP Morgan in 2013, helping to expand its wealth management division.
What I particularly like about Schroder’s dividend is that it has a strong uptrend over time, albeit with some volatility. The firm has increased it from 0.4% in 1995 to the healthy 5.2% today.
Also, the dividend has a 10-year average annual growth rate of 11.5%.
The greatest risks I see
As is the case with a lot of high-dividend shares, they often aren’t offered by the fastest-growing, most profitable firms in the world.
The companies that are the best for share price growth are often reinvesting their earnings and buying back stock rather than paying out profits to shareholders.
As Schroder’s is such an old company, it’s no surprise it’s passed its high-growth era. Its three-year annual revenue growth rate average is only 5.5%.
Its price is down over 35% from its high over a 10-year period. That trend is not guaranteed to stop now even though the company looks healthy to invest in to me.
It could be a worthy one
Schroders looks like a really strong investment for me to consider.
It’s not in my portfolio right now, as I’m more focused on building equity through strong growth and value shares.
However, if I were looking for residual income at the moment, Schroders might be one of the investments I’d choose. Therefore, it’s on my watchlist.
