Dividend investing is both easy to comprehend and — assuming payouts are fed straight back into the market — a highly effective way of growing your wealth over time. It’s also ideal for those who feel confident enough to stock pick, but who’d rather not spend every waking minute glued to their laptop, sweating about which direction the market might head next.
With this in mind, here are three of my favourite picks from the FTSE 100. All offer excellent dividend yields and all are available to buy at very reasonable prices.
3 of the best
Shares in ITV (LSE: ITV) have been on solid form of late, rising 15% of the back of May’s reassuring Q1 trading update.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Total external revenue rose 5% to £772m in the three months to the end of March, thanks in part to excellent growth at ITV Studios and online (up 11% and 41%, respectively). Encouragingly, this kind of performance is expected to continue over the full year.
Clearly, ITV is not a risk-free investment. Aside from companies reducing their advertising spend (or moving away from mediums like television completely), an early exit of England from the World Cup won’t be great for business, even if the popularity of Love Island may help cushion the blow.
With highly-rated ex-easyJet CEO Carolyn McCall now at the helm, a history of generating excellent returns on the capital it invests, and a well-covered 4.7% yield, I continue to rate the shares as a buy on just 11 times forecast earnings.
Power provider National Grid (LSE: NG) has long been a favourite among income investors for good reason. Its virtual monopoly means that payouts, while not increasing rapidly, are about as predictable as you can get.
May’s full-year results reflected on “strong operational and financial performance in 2017/18” with the company continuing to make “significant progress” with its US operations.
National Grid is expecting growth “at the top end of the 5-7% range for the medium term, and at least 7% in the near term”. Importantly for dividend hunters, this should ensure that payouts keep rising (albeit modestly).
Forecast earnings per share of 57.5p for the current year leave National Grid on a P/E of a little over 14. Taking into account its 5.6% yield and the fact that it’s less exposed to political influence compared to utility companies such as Centrica, that looks decent value to me.
Tobacco giant and Neil Woodford-favourite Imperial Brands (LSE: IMB) is another stock whose share price has bounced back to form over recent weeks. That said, the stock is still down almost 35% on the highs reached two years ago as investors grow wary over falling sales.
Although threatened by the prospect of increased regulation, broker Liberum believes that the tobacco industry is now trading at the widest discount to the European Consumer Staples sector in 15 years. With Imperial stock for sale at just 10 times forecast earnings, it certainly looks like a lot of bad news is already priced in.
What’s more, management appears to be doing all the right things to ensure that the company can maintain its tradition of consistently hiking its quarterly payouts, including attempting to dispose of superfluous parts of the business.
Ethically, the £25bn-cap won’t be to all investors’ tastes, but its stock comes with a huge 7% yield, making it one of the biggest payers in the FTSE 100.
