It’s an exciting time to be a dividend investor right now, in my opinion. With interest rates in the US rising, investors have dumped FTSE 100 dividend stocks in the last few weeks, and that means that there are now some excellent high-yield opportunities about for those willing to take on the risks of investing in the stock market.
With that in mind, today I’m going to show you how you could construct a simple FTSE 100 dividend stock portfolio that yields nearly 6%.
High-yield dividend portfolio
After scanning the market for higher-yielding stocks with prospective yields of 5% or higher, I’ve put together a hypothetical 10-stock FTSE 100 dividend portfolio below.
As you can see, all of the companies in the portfolio are well-known names, such as Royal Dutch Shell, Lloyds Banking Group, and ITV. Overall, the average yield on the portfolio is a high 5.8%, which, to my mind, looks quite attractive when you consider that the average rate on easy access UK savings accounts is around 0.6%, according to Moneyfacts.
Now, of course, this is just a very simple dividend portfolio that I’ve thrown together in a matter of minutes. I’m not suggesting you go out and buy these 10 dividend stocks today. I’ll point out that some stocks definitely have better prospects than others. Moreover, while the portfolio is diversified to a degree and contains companies from a number of different sectors including oil & gas, financials, healthcare and utilities, it’s certainly not as diversified as it could be, and if you were looking to build a rock-solid income portfolio, you would want to own more than 10 stocks (at least 20) in order to lower the stock-specific risk of your portfolio.
Yet the key takeaway here is that it’s now quite easy to construct a high-yielding dividend portfolio, without taking on a huge amount of risk. I don’t think there’s any stock in that portfolio that looks like it could be at risk of a dividend cut in the near term. For example, with the oil price having surged over the last year, Shell and BP are now swimming with free cash flow, so dividends there look sustainable. Turning to the financials – Lloyds, Legal & General and Aviva – all three companies have raised their payouts in recent years and are forecast to keep increasing their dividends in the medium term. Meanwhile, British American Tobacco looks to have the firepower to keep raising its payout after the recent acquisition of Reynolds American, and ITV recently stated that it plans to pay a divi of at least 8p per share this year and next. Even advertising giant WPP, while struggling to generate profit growth at the present time, has solid dividend cover.
So, in summary, building a high-yield portfolio is now easier than ever, after the recent sell-off. With UK interest rates remaining stubbornly low, dividend stocks continue to represent an excellent way of generating higher levels of income.
Edward Sheldon owns shares in Royal Dutch Shell, ITV, Lloyds Banking Group, Legal & General Group, Aviva, WPP and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended ITV and Lloyds Banking Group. 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.