Investing within a SIPP (Self-Invested Personal Pension) can be a great way to build wealth for retirement. Not only are all gains and income tax-free, but investors can also pick up tax relief on contributions.
Here, I’m going to highlight three dividend-paying investments I believe could be good options for a SIPP today. In my view, all have the potential to help investors build wealth over the long run.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
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An income-focused investment trust
First up, we have Murray Income Trust (LSE: MUT). This is an investment trust that aims to generate high and growing income, along with some capital growth.
I’m a fan of this trust for a few reasons. For a start, it’s a ‘dividend hero’, meaning it has increased its dividend payout every year for over 20 years now (it has actually achieved 50 consecutive increases!).
Secondly, while it predominantly invests in UK shares (Unilever, Diageo, and AstraZeneca are some of its top holdings), it has the flexibility to invest some of its capital internationally. This can help improve overall returns.
Finally, the yield is attractive (currently it sits at around 4.6%) while fees are low at 0.5% a year.
This trust has a solid long-term performance track record, having comfortably beaten the FTSE All-Share index over the last five years.
However, there have been times where it has lagged the market and there’s no guarantee it will outperform going forward.
A dividend-paying fund
Next, we have the FTF Martin Currie UK Rising Dividends fund. This is an actively-managed investment fund that aims to outperform the FTSE All-Share index by generating a growing level of income as well as some long-term capital growth.
What I like about this fund is its focus on generating a growing income stream for investors. Rising income could help investors beat inflation over the long run.
I also like the fact that the fund has an above-average yield (around 4.2% vs 3.8% for the FTSE All-Share index) and a good overall long-term performance track record.
One downside here is that, because it’s a fund, SIPP providers may charge extra fees to own the product.
Given that the fund’s charges are low at 0.53% a year (through Hargreaves Lansdown) however, overall fees are still likely to be reasonably low.
A top dividend stock
The final investment I want to highlight is a stock – Legal & General Group (LSE: LGEN). It’s a UK-listed financial company that offers insurance and investment management services.
Investing in individual stocks is riskier than investing in funds or investment trusts. That’s because funds and trusts are more diversified. However, on the plus side, the potential rewards can be greater.
And I think there could be some big rewards on offer here. This year, analysts expect Legal & General to pay out 20.3p a share in dividends. That equates to a yield of around 9.2% at today’s share price.
Of course, dividend forecasts aren’t always accurate. And share price volatility can wipe out gains from dividends.
At their current levels however, I think Legal & General shares offer an attractive risk/reward proposition for long-term investors.
