Dividend strategy musings

Adyinvestment

I am very new to investing but have been thinking about the below which "to my mind" seems a good idea for retirement.

This would be in addition to my pension.

Is the below a waste of opportunity?

To build up a portfolio of UK blue chip stocks when the dividend yield is around 6% (maybe a little less sometimes) or higher in an isa

My thoughts are when you get to retirement you can withdraw 6% tax free each year in addition to pension without tax or depleting the balance.

From my limited research it is rare for these companies to go completely bust, although they may get bought out or merged (which is not necessarily a bad thing) and once you have the yield locked in the share price is immaterial to the dividend payout.

I understand that dividend payouts could be reduced or halted but it seems that mainly they go up very slightly over time, so even with some variances the 6% should be achievable.

AnotherJoe

"1990 called and wants its (outdated) investment approach back"

Search for HYP investing

As for your comments that "I understand that dividend payouts could be reduced or halted but it seems that mainly they go up very slightly over time" you are looking in the rearview mirror. Look in the windscreen.

Prism

You can check the amount of dividend cuts to the FTSE 100 just this year
Dividend Cuts - FTSE 100 (dividenddata.co.uk)
That doesn't take into account any dividends that were frozen from previous years and did not go up or any that did go up but not by inflation.

Alexland

In terms of tax a pension is almost always better than an ISA for retirement money.
If you are investing for income (rather than total return) have a look at income focused investment trusts,
https://www.theaic.co.uk/income-finder/dividend-heroes
Some are more 1890s than 1990s..

Adyinvestment

Seems like I stumbled along an old strategy...well at least I thought of it myself 

All part of my education!

Thrugelmir

There's always windows of opportunity in volatile markets to selectively pick off higher yielding stocks, not just UK ones either. Nor restrict yourself to just FTSE100 companies. Though do your homework thoroughly first.  Mix this strategy with others. Never be reliant on just one approach. 

JohnWinder

Have a read of this, and then the other 25 entries in the series, and you'll have a fuller picture:

'Part 29, Part 30, and Part 31 all deal with the widely held misconception that we can easily save the 4% Rule if we were to increase the dividend yield to a level close enough to your 4% annual withdrawal rate. Simply live off your dividend income, avoid ever selling your principal at depressed valuations and you shield yourself from Sequence Risk, right? It certainly sounds intuitive and I was intrigued enough to research this option and absolutely hoped that this can indeed lower Sequence Risk.'

https://earlyretirementnow.com/safe-withdrawal-rate-series/

Audaxer

Adyinvestment said:

I am very new to investing but have been thinking about the below which "to my mind" seems a good idea for retirement.

This would be in addition to my pension.

Is the below a waste of opportunity?

To build up a portfolio of UK blue chip stocks when the dividend yield is around 6% (maybe a little less sometimes) or higher in an isa

My thoughts are when you get to retirement you can withdraw 6% tax free each year in addition to pension without tax or depleting the balance.

From my limited research it is rare for these companies to go completely bust, although they may get bought out or merged (which is not necessarily a bad thing) and once you have the yield locked in the share price is immaterial to the dividend payout.

I understand that dividend payouts could be reduced or halted but it seems that mainly they go up very slightly over time, so even with some variances the 6% should be achievable.

It is not a good idea to invest in individual stocks, especially if you are new to investing. It is better to look at a portfolio of dividend-paying funds or Investment Trusts, as each will hold a significant number of shares to give you much more diversification than holding individual stocks.

Just because a fund, Investment Trust or individual stock is currently paying dividends representing a yield of 6%, does not necessarily make that a good investment. Although you are not selling capital by taking dividends, the value of the capital will still fluctuate, and can lose value over time.