Owning dividend shares can be an effortless way to start earning income from spare money.
If I had a spare £50,000 to invest in shares today with the hope of generating beefy dividend income, I would split it evenly across the five shares below.
Doing so would hopefully earn me almost £4,300 in dividends a year, thanks to the average yield of 8.6% offered by this handful of shares.
Should you invest £1,000 in Centrica right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Centrica made the list?
British American Tobacco
The manufacturer of cigarette brands such as Lucky Strike is also quickly growing its non-cigarette business. That could help British American Tobacco manage to combat the key risk of declining cigarette usage in many markets.
Globally, cigarettes remain big business and I expect that to remain the case for a long time. BAT’s premium brand portfolio gives it pricing power and enables it to throw off huge amounts of free cash.
It has raised its dividend annually for decades and currently yields 8.6%.
Legal & General
Financial services provider Legal & General has a strong brand, large customer base and is highly profitable. Yet it trades on a price-to-earnings ratio of around six and yields 8.5%. I have recently added it to my portfolio.
I do see a risk that a lacklustre economy could hurt its investment returns, damaging profitability for the company.
In the long term though, I see the current price as a bargain.
M&G
I also reckon fellow financial services provider M&G is selling at a bargain price. It raised its dividend this year and now yields 10.2%.
Over the long term I think the company ought to benefit from strong demand for investment management services, although I do see a risk that volatile stock markets could lead to swings in earnings.
ITV
FTSE 250 broadcaster ITV has been in the headlines a lot this year. But what most grabs my attention about the company is its solidly profitable business.
Post-tax profits last year came in at £435m. Yet the business has a market capitalisation of under £3bn, meaning these dividend shares look like a bargain to me.
A possible decline in advertising demand could hit revenues and profits. But with a broadcasting business and also a growing production house, I think ITV is undervalued. On top of that, the shares yield 7.3%.
European Assets Trust
My fifth and final choice of dividend share if I had £50,000 to invest right now would be European Assets Trust, with its 8.3% yield.
European markets are grappling with high inflation, threatening profits at the companies in which the trust invests. Longer term though, I remain upbeat about the region’s prospects. I think the dividend could be raised again after a cut earlier this year.
Then again, if Europe remains in the doldrums, another cut is a risk. But I think the trust’s strategy of investing in small- and medium-sized companies in a range of Continental European markets should set it up well for any future recovery.
