Owning dividend shares in an ISA could potentially help me build wealth in two ways.
Over time, if I buy into the right shares at an attractive price, hopefully I would see capital gains. Along the way, the dividends could earn me some passive income. Investing a £20k ISA into shares yielding an average 5% ought to earn me £1,000 each year in dividends.
Here are three FTSE 100 shares each yielding 5% or higher that I think investors ought to consider buying.
WPP
Advertising has had a challenging few years. There remains a risk that economic weakness will lead to advertisers spending less, something that could be bad news for ad agency network, WPP (LSE: WPP).
Still, the company has been performing fairly well lately in a tough environment. First-half revenues were basically flat year on year, while operating profit was up 38% to £423m.
An announced sale of its majority stake in FGS Global is expected to generate cash proceeds after tax of over £600m, helping to improve the balance sheet. The interim dividend was held flat and WPP yields 5%.
At 24% less than five years ago, I think the WPP share price is reasonable for a company that has a strong position in its industry, an extensive global network, and increasing digital focus.
Aviva
Insurer Aviva (LSE: AV) may not seem like an exciting share, but that is part of its appeal to me. It operates in a proven business area likely to see long-term demand, has a large customer base, has proven it can underwrite profitably, and owns strong brands that help it market its services cost-effectively.
Aviva’s dividend yield is almost 7% and it has been raising its dividend per share since a cut several years ago.
An increased focus on its home UK market offers operating efficiencies, but by tying the company’s performance more closely to the UK insurance market I think it has increased some risks, for example, if competitors try to gain market share by competing on price.
As a long-term investor, I see Aviva as an unexciting but solid business that I think can likely build on its strengths for years or decades to come.
Vodafone
With its 10.1% dividend yield, telecoms giant Vodafone (LSE: VOD) could be quite the passive income money spinner. Things are going to change, though, as the company has announced plans to halve its annual payout per share.
Still, that would leave it yielding over 5%.
The dividend cut, asset sales in recent years, and less debt on the balance sheet than before mean the Vodafone dividend, after the cut, looks more sustainable than it has for years.
The company has a well-known brand and market-leading position in multiple markets. It has hundreds of millions of customers in Europe and Africa. I think its mobile money services in Africa could be a big growth driver.
Vodafone has disappointed investors before and one risk I see is declining revenue streams due to the asset sales I mentioned above. But it remains a formidable business with large cash generation potential.
