How I’d invest my first £20k ISA to target £4,536 a year from dividend shares

This writer highlights a pair of FTSE 250 dividend shares he’d consider buying to lay the foundations for a passive income-generating portfolio.

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There are boatloads of dividend shares offering fantastic income prospects right now. Here, I’ll highlight two quality FTSE 250 stocks that I’d consider buying with my first £20k in a Stocks and Shares ISA.

Diversification

Investment trusts are a great way to gain instant portfolio diversification. These closed-end funds can invest in a range of stocks, bonds, property, and more. And many therefore pay regular and reliable dividends to shareholders.

One that I’ve long had my eye on is BBGI Global Infrastructure (LSE: BBGI). This is a social infrastructure company with 56 assets in the UK, US, Australia, and Europe.

What I like here is the nature of these public-private partnerships. We’re talking about schools, healthcare facilities, police and fire stations, roads and bridges, affordable housing, and more.

As the fund says, these assets “provide high-quality, stable, predictable and inflation-linked cash flows“.

They supported a dividend of 7.9p per share last year, a 6% increase on 2022. At the current share price of 130p, that gives a dividend yield of 6%.

Looking forward, BBGI is targeting a dividend of 8.4p per share for 2024 (6% growth), then 8.5p for 2025. This puts the forward yield at an attractive 6.5%.

One risk I’d highlight here is a return of inflation and higher-for-longer interest rates. This scenario would make other assets classes more attractive to investors, and likely keep pressure on the fund’s share price.

However, I’d note that BBGI used surplus cash flows to fully pay down its revolving credit facility last year.

This suggests to me that this is a well-run, low-risk infrastructure fund whose shares (down 25% in three years) have been unfairly sold off. I’m finally looking to invest in the coming weeks.

Excellent dividend growth stock

Mixing things up slightly, I’d go with dark wargames set in a futuristic universe of unrelenting conflict. I’m talking about Games Workshop (LSE: GAW), the maker of the Warhammer franchise.

The company has grown rapidly in recent years, attracting millions of new customers alongside the rise of social media.

The business is built upon intellectual property like character designs, game rules, and brand recognition. These intangible assets require minimal capital investment, which helps Games Workshop return lots of cash to shareholders via dividends.

The yield currently stands at 4.2%, which I think is attractive considering the share price has risen 211% over the past five years.

One potential challenge here is finding new ways to grow. If it can’t, then the shares could come under pressure trading at 23 times earnings.

However, I’m optimistic due to its deal with Amazon that aims to turn Warhammer 40,000 into a film and TV series. This could bring in huge licencing revenue as well as boost its core merchandise business.

The path to £4,536

Taken together, these two stocks should pay me an overall dividend yield of 5.1%. Assuming this continued with reinvested dividends and no increases, I’d get to £4,536 after 30 years.

Of course, dividends aren’t guaranteed. So I’d certainly want to build out a diversified portfolio in this time.

Investing a further £750 a month, I could grow my ISA to £520,178 after 20 years, assuming an average 8% return over the long term. A 5.1%-yielding portfolio would then pay me £26,530 annually.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Amazon and Games Workshop Group Plc. 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.

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