Investing in high dividend companies

fizio

I'm looking to further diversify my portfolio and one area i'd like to get into is an ISA in a basket of uk bluechips that regularly pay a good dividend (circa 5%) I'm not looking for income, just growth.

This is easy via one of the many investment trusts that have specific funds for this sort of investment but i'm trying to keep my fund charges low so looking for alternative options.

The options as i see it are
1. Just work out which companies and buy the shares directly
2. Buy the cheapest suitable investment trust
3. Buy FTS100 tracker as that contains all relevant companies
4. Buy an ETF aligned to this area (assuming one exists)

Comments please... Though I'd rather people didn't say i'd be better off investing in x, y, z as I have a broad portfolio so have probbaly already got x, y, z.

CLAPTON

a bit confusing

good dividends tend to go with mature companies with limited growth prospects

you say you want about 5% but are considering ft100 tracker; which give about 3%

BLB53

1. Just work out which companies and buy the shares directly

This is probably the cheapest route in the long run. Once the shares have been purchased there are no more ongoing charges. Presumably you will be reinvesting the dividends.
Be sure not to go for too high yield, make sure dividends are well covered and also beware of high gearing.

2. Buy the cheapest suitable investment trust

Next best option - an IT like City of London has a great track record and low annual TER less then 0.5%.

3. Buy FTS100 tracker as that contains all relevant companies

Cheap but not particularly high yield.

4. Buy an ETF aligned to this area (assuming one exists)

I'm fairly sure it does not yet exist although there are several in USA so maybe won't be too long here.

I have just written a short guide which covers this area which has just been published as an ebook today on Amazon Kindle. (Probably not good form to advertise here though)

Good luck with your portfolio.

BLB

relaxtwotribes

Please could you let us know the class of asset you are planning to diversify away from?

Linton

There does exist an ETF, IUKD, but its performance has been very erratic and the yield only moderate compared with some other options. Being blindly index driven, I believe it invested heavily in the banks right up to the crash. So IMHO an example of the pitfalls of tracking in inappropriate sectors.

grey_gym_sock

for a relatively small investment, an investment trust will be cheaper than buying the shares directly.

to get a reasonable spread of risk, if buying directly, you'd need a minimum of 10 shares (some might say 15 or 20). dealing costs are generally excessive if you put less than (say) £1000 in each share. e.g. supposing you were investing £10k in 10 different shares, you might pay £10 to your stockbroker to buy each share, and the same again when you sell them. a total cost of £10 * 10 * 2 = £200, which is 2% of your initial investment. if you held this portfolio for 5 years, that is 2% / 5 = 0.4% per year, which is similar to City of London IT's annual charge of 0.5%. if you want to reinvest dividends, that would probably make the portfolio a bit more expensive (or there might be a minimum amount to reinvest, which would mean the dividends sit as cash for a long time).

i'm not completely discouraging you from the idea of buying shares directly. i just think that £10k is about the minimum for it to make sense (you didn't say how much you were investing, but did mention ISAs).

also, a portfolio of only 10 shares has to be a few notches more risky than a more diversifed IT.

sabretoothtigger

relaxtwotribes wrote: »

Please could you let us know the class of asset you are planning to diversify away from?

I presume cash hence the yield is relevant

3. Buy FTS100 tracker as that contains all relevant companies

This is best overall as it is cheap to do. Not messy, you wont get tied up trying to time shares, its just one number to watch and you get 100 companies and some growth as well as the income


I actually prefer other indexes like FTSE 250 which is more growth or Asia Pacific which is more growth and I believe it will give more income over the years


Im not sure why people love UK bluechips except you recognise the brand name as local and it gives comfort.
The FTSE is global not UK and its largely about commodity prices, the UK is not a mining economy so really its nothing to do with us hence Im fine with Asia pacific tracker which is safer anyway and supplies the UK just as much more or less with companies like Samsung and BHP

More adventerous is Newton Asia income, which is 5% but also smaller companies you have no clue about but likely are supplying the UK indirectly anyway

fizio

Thanks for all the feedback and I'll try to respond to some of the questions :

- I have spare cash so i'm not taking money from other investments
- I'm looking at a ISA so 10k investment
- I already have FTSE all share investments
- I already have investments in various asset classes and geographies
- I appreciate that there are limited growth prospects but the dividends tend to be fairly certain and if re-invested gives a decent return with any growth being a bonus

It seems like my 2 choices are to buy shares directly (maybe £1k 10 companies or a bit riskier and £2k in 5 companies) or to find a low charges IT aimed at this segment..

Useful feedback so many thanks,

gadgetmind

Linton wrote: »

So IMHO an example of the pitfalls of tracking in inappropriate sectors.

Not really, more the problem of using forward yield as your *only* selection criteria for shares.

The Vanguard UK Equity Income tracker does use yield, but also applies a per company and per sector cap, which results in a much more balanced portfolio.

gadgetmind

haf63 wrote: »

i'd like to get into is an ISA in a basket of uk bluechips that regularly pay a good dividend (circa 5%) I'm not looking for income, just growth.

I can't tally those two statements!

If you want to diversify away from the FTSE 100 while still getting good yields, maybe these articles are of interest?

http://citywire.co.uk/money/gervais-williams-6-alternative-income-stocks-i-m-backing/a569607

http://www.fool.co.uk/news/investing/2012/02/29/3-ways-to-diversify-your-dividends.aspx

Linton

gadgetmind wrote: »

Not really, more the problem of using forward yield as your *only* selection criteria for shares.

The Vanguard UK Equity Income tracker does use yield, but also applies a per company and per sector cap, which results in a much more balanced portfolio.

Dont you feel a little uneasy as tracked indexes get more complex and artificial, and so must cease to represent "The Market" which, as we are repeatedly told, cannot be beaten? If not why not?

Why not have an index composed of investments the fund manager likes? All funds are then index trackers.