Market volatility is a good reminder for investors that while it’s great to have robust growth stocks in a long-term portfolio, it’s also important to include an income stream in the mix by owning dividend shares.
Both the FTSE 100 and the FTSE 250 are home to many stable companies operating in solid sectors that mirror our economy and deliver inflation-beating dividends. You can reinvest those dividends, especially in a tax-efficient Stocks and Shares ISA. Such dividend shares tend to outperform the market over the long run. If company dividends grow year after year, their shares also become more valuable. And the power of compounding through tax-efficient investing coupled with dividend re-investing can send your retirement wealth soaring.
Dividends from a consumer goods champion
FTSE 100 member Unilever (LSE: ULVR) has a strong brand portfolio, ranging from Bertolli to Colmans, Cornetto, Domestos, Dove, Impulse, Lynx, Marmite, Vaseline, and Persil. The household name also has a reliable supply chain as well as an efficient distribution network. Its enviable history goes back to the 1880s.
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If you do not currently own Unilever stock, you may be interested to know that the share price has bounced back quickly from the March lows following the market crash. So far in 2020, the stock is up over 1%, hovering at 4,409p.
In its April Q1 trading statement, management pulled its full-year growth and margin outlook. It said it could not “reliably assess the impact” of the Covid-19 outbreak on its business operations. But the board kept the dividend intact. The current dividend yield stands at 3.3% and the shares are expected to go ex-dividend next in early August. I’d buy the dips in ULVR shares.
Investing safely
FTSE 250 member Safestore (LSE: SAFE) is a high-growth specialist in self-storage solutions with assets in the UK (125 locations) as well as France (28), the Netherlands (six) and Spain (four). The group began operations in 1998.
Over the years, the company’s strong revenue rises have been fuelled by both significant organic growth and several acquisitions. The occupancy rate is around 78.5%. Year-to-date, SAFE stock is down 11%. The current price of 715p means a dividend yield of 2.4% for now. The shares will likely go ex-dividend in July.
On June 3, the group will release its interim results for the six months ending 30 April. The share price is likely to be volatile around the date. Potential investors may also want to analyse the metrics at the time. That would give a better appreciation of the effects of the pandemic on the business operations.
Its trailing P.E stands at 11.4. Hence I’d be a buyer if there is a drop in the stock price in the coming weeks, especially toward the 700p level. I think the mid-cap share is likely to be a safe pair of hands during this decade too.
Foolish Takeaway
Seasoned investors realise that compound interest is possibly the strongest force in the financial world. If you can pull together £500 a month to invest in shares for 30 years at an annual rate of 6%, then you’d have a final portfolio worth over £500,000. If you increase the monthly amount to £700 and the rate to 7%, then the total retirement nest egg goes over £700,000.
Therefore if you’ve a long-term view, investing success comes by sticking to the basics: buying solid dividend shares at decent prices that offer value.
