I’m always looking for dividend shares to add to my portfolio because I love receiving dividend income. It’s historically been an essential part of investment returns in the long run.
The power of dividends
One of my favourite income stocks is the UK insurance giant Admiral. The performance of the company’s shares over the past decade shows just how vital dividend income can be.
For example, £1,000 invested in this company a decade ago would be worth £2,226 today, excluding dividends, or nearly £3,000 including dividends. That’s an additional profit of around £800, or 35%.
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Current dividend forecasts suggest the shares will offer a yield of around 5% this year. I already own the stock but would continue to buy it for my portfolio of dividend shares because I think insurance is an incredibly defensive industry. Every car driver has to hold insurance, and that will continue. As one of the most prominent players in the sector, most consumers will turn to Admiral to insure their cars. This should provide the group with a steady stream of customers and profits.
That being said, the group has recently benefited from lockdown as consumers have been driving less. This has helped artificially boost profits and will not continue. It may also suffer from competition as car insurance is an incredibly competitive market.
Dividend shares and diversification
Some investors might not like owning insurance stocks because they can be challenging to understand. I do not want to have too much exposure to one sector in my portfolio of dividend shares, which is why I would also buy CMC Markets and PayPoint.
Both of these companies provide different services in the same sector. CMC provides trading services for investors. Meanwhile, PayPoint provides point-of-sale products for consumers and shopkeepers alike.
Both of these markets are attractive for different reasons. As the world becomes more digital and the use of cash drops, demand for electronic payment services, such as those offered by PayPoint, should continue to grow. At the same time, booming financial markets are attracting more customers to CMC’s offering.
The one key challenge both of these firms face is competition. The electronic payments market is incredibly competitive, with large American giants holding the most market share. PayPoint faces an uphill struggle to compete with these giants.
At the same time, there are a handful of other businesses that offer similar services to CMC. The company is going to have to work hard to keep these competitors at bay. Still, I would buy CMC for its 6.8% dividend yield and PayPoint for its 5.5% yield today.
Income from gold
Finally, I would buy gold miner Centamin for my portfolio of dividend shares with its 5.3% dividend yield. Gold is generally considered to be a defensive asset, and that gives gold miners similar qualities.
I think Centamin is more defensive than most as the firm has $300m of cash on its balance sheet. It also has a cash cost of production of around $883 per ounce, which is compared to the current gold price of $1,800 per ounce.
Still, one risk I need to keep an eye on is the gold price. If the price of gold collapses, Centamin’s profits could follow suit. This would put its dividend under pressure.
Despite this risk, I would buy the shares for their 5.3% yield today.
