Some investors hold an asset, such as gold, in the hope of it increasing in price. Other types of investments (like a Cash ISA) don’t appreciate in value, but do pay out income in the form of interest. Top dividend-paying UK stocks are a mix of the two. The share price has the potential to increase and the dividends paid out count as income during the holding period.
The goal for some investors is to generate enough profits from investments to support early retirement. How early you want this retirement to be relative to the normal state age impacts how much you need to generate. If you start early, you can achieve this with even a relatively modest investment pot. For example, I wrote a piece here on how just £94 a week can turn into a substantial amount when compounded over time.
Why not a Cash ISA and gold?
Some could argue that the Cash ISA and gold are similar investments, as they are both for conservative investors who are looking for a safe haven. Gold typically appreciates in value when uncertainty is high, as investors flock to it as a safe store of value. A Cash ISA has very limited risk of losing your initial investment.
For me, neither investment stacks up when compared to top UK stocks. A Cash ISA does guarantee me a fixed rate of interest, but this is usually lower than the dividend yield of a stock. The FTSE 100 average dividend yield is around 3.75%, whereas you’ll struggle to find a Cash ISA paying over 1%.
Gold also doesn’t pay any interest, but you can see large price gains. It recently crossed over $2,000 per ounce, before retracing lower. It may be up 27% over the past year, but top UK stocks can easily match that price performance. Added to this is the dividend income from many UK stocks that gold simply will never pay.
Which top UK stocks to buy?
Now that we’ve established where we stand, we can focus on stocks specifically. There are many stocks you could choose to buy, but which ones stand out in the crowd? One top UK stock is Avast. The software firm listed back in 2018 in the UK and sells a range of IT security products. The growth of the business has meant the share price is up 42% over the past year. It is also currently paying out dividends, with a yield of around 2.3%. This shows that it’s possible to buy a top UK stock that has offered an increase in price as well as paying out income.
If you prefer to invest more for income, you can tweak the parameters and go for a high-dividend-yield option instead. The M&G share price currently offers at dividend yield of just under 11%.
Ultimately, I’d stay away from other types investments and look to take advantage of top UK stocks that can potentially provide you with both income and capital appreciation.
