I’m looking to add some dividend shares to my portfolio before the stock market recovers. That’s because as share prices move higher, respective dividend yields fall. And I’d much rather lock in a chunky yield now if I can find it.
There’s certainly no shortage of high-yielding shares. In fact, almost a fifth of FTSE 100 shares offer 5% or greater.
Top dividend shares
At the top of my list is a savings and retirement-focused business called Phoenix Group (LSE:PHNX). It offers a yield of 8%, and I’d buy these shares today.
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But there are other factors to consider apart from just the yield. I’d want my top picks to have a decent track record of paying dividends. Ideally, I’d like to see some dividend growth too.
Phoenix receives a tick in the box for each of these points. It has been paying dividends for over a decade and has achieved six years of consecutive dividend growth. That’s impressive considering we’ve had to endure several recession fears in the past few years.
Bear in mind that dividends aren’t guaranteed. They’re reliant on business performance and management policy. There’s always a chance that the payment could be cut if earnings can’t keep pace. That said, it has predictable cash flows and a whopping 240 years of history behind it.
Income and growth
Next, I’d buy renewable energy provider SSE (LSE:SSE). It currently offers a 5% dividend yield. That’s certainly not the greatest available, but it’s still above average for the FTSE 100.
Many dividend shares offer excellent yields but have limited scope for share price gains. I reckon SSE offers both.
Renewable energy is in focus. Not just for environment reasons, but for energy security too. It has fast become an area of deep interest since the war in Ukraine started. And more countries are looking to diversify their energy sources.
SSE should benefit, in my opinion. As the UK’s leading generator of renewable electricity, it looks well-placed to capture this demand.
Bear in mind that there are risks it could be hit with windfall taxes as the energy crises deepens over the coming winter. That would depend on government policy and potentially public pressure.
Overall, I reckon SSE offers one of the best opportunities for income and growth in the FTSE 100.
Money money money
Next, I’m looking at financials. I’d snap up Lloyds Banking Group (LSE:LLOY) for its 5% dividend yield. Before the financial crisis of 2008, banks were popular dividend shares. They offered relatively high and reliable dividend streams. Are those times set to return?
Much has changed since those days and banks are far more resilient now. But many, including Lloyds, have returned to shareholder-friendly dividend policies.
I’m not considering Lloyds just for its dividend though. A backdrop of rising interest rates has made Lloyds shares far more attractive in recent months.
Banks can benefit tremendously when rates climb as their net interest income tends to rise. That’s the difference between the interest the bank earns by lending money and what it pays in expenses.
I would caution that higher interest rates can lead to a slower economy. Eventually, Lloyds could face higher loan defaults.
Overall though, Lloyds offer a combination of reliable dividends and potential share price growth. I’m a buyer.
