Investing for Income

Linton

Thrugelmir wrote: »

Shares yield a high dividend for a reason. Buying them because they are high is not a reason.

Depends on how high. Anything up to say 5.5% is perfectly reasonable. Once you get above say 7% then be careful, very very careful. Also you need to check consistency. Some companies and ITs have a record of increasing dividends over many years, others may have a one-off high dividend to return money to the shareholders. Also you need to check that the company has a reasonable dividend cover ( profits/dividend). Above 1 is essential, 1.5 would be much better. So you do need to do your research before buying.

Thrugelmir

Linton wrote: »

Depends on how high. Anything up to say 5.5% is perfectly reasonable.

Why does the level of the yield make something reasonable?

bigfreddiel

Thrugelmir wrote: »

Why does the level of the yield make something reasonable?

Because a high yield might mean the share price is heading south, and that reason may be enough NOT to buy.

Beware high yields without investigating the equity in detail.

Cheers fj

Linton

Thrugelmir wrote: »

Why does the level of the yield make something reasonable?

If you are looking for income then too high a yield would be a strong warning sign that the share price is falling and the dividend may be at risk. Around 5.5% is not incompatible with long term consistent dividends. Much higher than that is probably not sustainable. So it's a useful first stage check. I was providing a warning to newbie income investors that higher yields are not necessarily better.

Chickereeeee

Assuming investments are held outside a pension, I aim for yield within an ISA and capital growth outside. This to minimise tax, and also beacause I would prefer to retain ISA holdings as long as possible.

Eco_Miser

Thank you all for your comments and suggestions. You've given me food for thought, and I see both approaches have advocates here.

Nearly all my investments are already in an ISA, so the tax considerations don't apply; and my pensions should cover day to day needs, so this pot is for the pleasures of life - and maybe big ticket house maintenance.