Investing in high-yield shares can be a great way to build long-term wealth. By targeting and then reinvesting large dividends, I can effectively harness the power of compounding. This can exponentially grow the size of my portfolio over time.
The London stock market is packed with excellent stocks with sizeable dividends today. Here are three of my favourites. Each of their forward dividend yields smashes the FTSE 100 average of 3.6%.
| Company | Forward dividend yield |
|---|---|
| Foresight Solar Fund Limited (LSE:FSFL) | 8.7% |
| The PRS REIT (LSE:PRSR) | 4% |
| TBC Bank Group (LSE:TBCG) | 8.3% |
If I invested £14,300 equally across these three dividend shares, I’d enjoy a £1,000 passive income this year. But remember that this assumes that broker projections are accurate.
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Here’s why I’d buy these companies if I had cash ready to invest today.
Sun king
Power generators like Foresight Solar Fund can be excellent sources of dividend income over time. The stable nature of energy demand means that earnings tend to remain stable regardless of broader economic conditions.
But why choose this particular electricity producer? One reason is that near-9% dividend yield. Another is that the business — which owns solar power assets in the UK, Spain, and Australia — has significant growth potential as demand for clean energy accelerates.
There are drawbacks here. Keeping solar panels in good working order can be extremely capital intensive. What’s more, energy production can dip during periods of poor weather.
But on balance, I think it’s a solid defensive stock for dividend income.
Safe as houses
High interest rates pose a danger to real estate stocks like PRS REIT. They depress the value of their assets and push up loan costs, both of which impact earnings.
Yet I believe its other qualities make the property powerhouse a top income stock. For one, its focus on the residential sector means it enjoys a steady flow of income at all times. It collected 100% of the rents it was owed in the September quarter, for instance.
Soaring rents are another reason I like PRS REIT. Like-for-like rental growth was an impressive 12% in the 12 months to September, reflecting the UK’s huge homes shortage.
Finally, under REIT rules, the company must distribute nine-tenths of annual rental profits by way of dividends. This gives investors even more reason to expect big dividends.
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Another 8%+ dividend yield
While I’m a big fan of PRS REIT, emerging market bank TBC Bank might be a better option for investors seeking spectacular dividend income to consider. At above 8%, its yield for this year is twice the level of the property giant’s.
The downside, however, is that earnings here tend to fluctuate more over time. When Georgia’s economy struggles, profits across the country’s banking sector tend to sink.
That said, while dividends are never guaranteed, there are no obvious dangers to the bank’s dividends in the near term. This is thanks to TBC’s capital position (its CET1 ratio was 16.8% as of June, well above regulatory requirements).
I think earnings and dividends here could rise strongly over the long term, driven by blistering economic growth in Georgia.
