I’m grateful to be able to earn a decent income. However, I’m also looking to build wealth and a second income.
I believe it’s very much possible to do this via dividend investing.
Let me explain the steps I’d take today if I was starting afresh.
Key things I’d do
Firstly, it’s important to have an investment vehicle that maximises the additional income I’m seeking.
I reckon a Stocks and Shares ISA is a no-brainer. A big reason for this is the fact the dividends received are not taxable. Ideally, I want to try and keep as much of my gains to myself as possible, without the taxman coming calling.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Next, I need to ensure I pick the correct stocks with the best prospects of regular returns. I’m wary that the highest yields out there aren’t always the best stocks to buy. In some cases, the higher yield looks good, as I’ll show in the example pick later.
For me, dividend investing is about investing in stocks that provide the ability to offer me regular returns now and tomorrow. So, is there an element of future-proofing for the business I’m considering? Can it continue to earn and offer me returns as an investor? Furthermore, what’s the firm’s track record in years gone by? A lot of research and due diligence goes into the stock-picking process.
Finally, it is worth me being clear on the fact that dividends are never guaranteed. They can be cut or cancelled to conserve cash at any time.
9.8% yield!
If I had some money to invest right now to help build my additional income, Phoenix Group Holdings (LSE: PHNX) looks like a great stock to buy for my portfolio.
The FTSE 100 income and savings giant possesses a mighty dividend yield of 9.8%! Now I know I said earlier not to be fooled by high yields, but not all are bad.
In theory, buying £10,000 worth of shares, with a yield of 9.8%, could bag me £980 in dividends.
In the case of Phoenix, I reckon it ticks all the boxes of what a good dividend stock is. To start with, the business has a solid balance sheet, which provides a level of safety when it comes to shareholder returns.
Next, the firm has an excellent track record of performance, as well as cash generation. The second is key, as those stocks that possess strong cash levels tend to be the best dividend payers, generally speaking. However, I do understand that past performance isn’t a guarantee of the future.
Looking forward, the future looks bright too. As the UK population is ageing, and many are beginning to think about their finances in their golden years, Phoenix is in a great position to capitalise.
Finally, the shares look good value for money on a price-to-earnings ratio of just nine.
From a bearish view, short-term issues such as economic volatility causing many to focus on essential higher bills, rather than long-term savings, could dent cash generation, earnings and returns. However, as I’m a long-term investor, this isn’t a huge concern for me at present.
