I think the stock market is one of the best ways to generate a reliable long-term income. In this piece I’m going to look at five high-yield dividend stocks I’d buy if I wanted to generate maximum income today. Of course, ‘reliable’ doesn’t mean guaranteed – companies can cut or reduce their dividend payments to shareholders at any time.
The average dividend yield across these five stocks today is 6%, based on 2021 forecasts. That’s double the FTSE 100 average of 3%. These are all stocks I’d buy today if I was starting to build a passive income portfolio.
Two out of the five stocks on my list currently offer a forecast yield of more than 6%. At the top is FTSE 100 tobacco giant British American Tobacco, with a yield of 7.7%.
BATS will obviously trigger some ethical concerns for some investors. But the company’s 35%+ profit margins and super-strong cash generation tick all the boxes for me as an income investor.
My main concern is about the likelihood of a long-term decline in smoking rates in key markets such as the US. So far, this is being managed through market share gains and higher prices. But it could be a problem one day.
The other 6%+ yield comes from financial giant Legal & General Group. This company’s brand is well known. What’s not so widely known is that much of this business is now focused on running large corporate pension schemes and investment funds.
Legal & General’s profitability and cash generation have impressed me for years. I think the company’s 6.7% yield should be safe. The main risk I can see is that the company’s investments are huge and complex. If the company’s internal forecasts and assumptions ever went wrong, shareholders might face a dividend cut.
A green high-yield dividend stock?
My next two stocks both offer yields of between 5% and 6%. First up is wind farm manager Greencoat UK Wind. This business is simple enough — Greencoat investments money in wind farms and then collects the income they generate from electricity sales and government subsidies.
The forecast yield of 5.6% looks safe enough to me, although I think there’s some risk that income from wind could become more variable as more wind farms are built without subsidy support.
My other pick with an eye on future growth is telecoms group Vodafone. The stock offers a high dividend yield of 5.9%, backed by stable cash flows. Growth in Europe is likely to be slow, I think, but I’m excited by the growth potential of the group’s African operations.
Safer than houses?
Commercial property has historically been seen as a reliable source of income. I think this will continue to be true, despite the disruption the market has suffered over the last year.
My pick is FTSE 100 REIT Landsec, which owns some of London’s most in-demand office property. I think these flagship sites will remain popular with companies, even if office demand in general is lower in the future.
Landsec has been through some pain over the last year, but the company’s finances look strong to me. I expect the forecast yield of 4.9% to increase over the coming years.
These high-yield dividend stocks aren’t likely to deliver rapid growth. But in my view, they should provide a reliable income today and offer the potential for future gains.
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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco, Greencoat UK Wind, and Landsec. 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.