ISA investors can significantly boost their second income when share prices are falling. Dividend yields move in the opposite direction to asset prices, meaning investors get more back in dividends for every pound they put into the stock market.
The FTSE 100 has slumped 6% in the past week. And so the index’s average dividend yield has risen back above 3% for the first time in months, to 3.1%. That’s a nice bonus, but investors can do much better than this.
For instance, £20,000 spread equally among the following four dividend stocks will deliver a £1,375 passive income this year alone. And I’m confident these FTSE 100 and FTSE 250 stocks will each deliver a growing second income over time too. Read on to find out who they are.
Two top trusts
Real estate investment trusts (REITs) are among the most popular dividend stocks out there. It’s not tough to see why — under sector rules, at least 90% of profits from their rental operations must be distributed to shareholders.
This doesn’t make them risk free, however. Right now, surging oil prices threaten to impact overall earnings by boosting inflation, impacting interest rate movements, and depressing their asset values.
But I think Grainger and Supermarket Income REIT are a couple of shares that still merit consideration. Recent share price weakness has driven their dividend yields to 5.1% and 7.4% respectively.
Could these stocks weather an economic shock caused by surging oil prices? I think so, reflecting their focus on non-cyclical parts of the economy. Grainger is the UK’s biggest residential landlord, while Supermarket Income lets out retail space to blue-chip food retailers.
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Two FTSE 100 shares
I expect Standard Life (LSE:SDLF) and M&G to keep paying huge dividends as well, though they face greater earnings uncertainty. The City shares my confidence, meaning these FTSE 100 shares yield 7% and 8% respectively.
If consumers feel the pinch, they could start spending less on financial services products. So why are City analysts still so confident about these stocks’ dividend prospects? It comes down to regulatory rules that demand these companies have large capital reserves. This gives them the financial firepower to pay large dividends even when profits come under pressure.
This explains these companies’ long records of dividend growth. M&G has raised annual payouts every year since its shares listed on the London stock market in 2019. And dividends at Standard Life have never been cut and have risen consistently since 2016.
A dividend hero I’m considering
Standard Life’s a share I’m considering buying for my own portfolio. It’s likely to experience some bumps along the way during cyclical downturns. Dividends may remain robust, but its share price could still fall if profits reverse.
But over the long term, I think the FTSE 100 company will rise strongly in value. As a retirement product and life insurance provider, it’s well placed to capitalise on the UK’s booming elderly population. Over the next decade, I’m confident it will deliver excellent capital gains along with a large second income through more huge dividends.
