There are many strategies I can adopt in my quest to become a Stocks and Shares ISA millionaire. One of them could be by loading my portfolio with high-dividend stocks to supercharge my passive income.
An article from my Foolish colleague John Fieldsend recently caught my eye. Analysing data from AJ Bell, it showed which UK shares are most popular with ISA millionaires.
These can be seen in the table below.
|
Rank |
Stock |
Forward dividend yield |
|---|---|---|
|
1 |
Shell |
4.5% |
|
2 |
Lloyds Banking Group |
6.5% |
|
3 |
GSK |
3.6% |
|
4 |
BP |
4.9% |
|
5 |
Aviva |
7.2% |
|
6 |
National Grid |
5.6% |
|
7 |
Haleon |
1.9% |
|
8 |
Scottish Mortgage Investment Fund |
0.5% |
|
9 |
Legal & General Group |
7.2% |
|
10 |
HSBC Holdings |
10.2% |
Investing for dividends
As you’ll notice, the table is dominated by companies that pay above-average dividends. Only GSK, Haleon, and Scottish Mortgage offer dividend yields below the 3.8% average for FTSE 100 shares.
Buying dividend shares — and then reinvesting the payouts I receive — can be a great way to generate long-term wealth. This way I earn money on my initial investment and then on the dividends I reinvest. Over a period of decades this can add up to a seriously big sum.
Just ask one of the 4,000 people who have made millions in their ISAs. Of course there are many more dividend stock investors who made their fortunes outside of these tax wrappers, too.
A FTSE dividend share I’ve bought
I myself have packed my portfolio out with high-dividend shares from the FTSE 100 and FTSE 250. Life insurance giant Aviva (LSE:AV.), which is featured in that Top 10 list above, is one of these.
At 7.2%, it currently offers one of the largest dividend yields on the Footsie. But while the yields on some blue-chip shares look vulnerable, I believe payout forecasts here look pretty robust.
Profits could suffer if the tough economic climate keeps demand for its financial products under pressure. However, the company has a cash-rich balance sheet it can use to keep paying huge dividends. Its Solvency II capital ratio stood at 207% as of December.
I expect the passive income from Aviva shares to steadily rise over time, too. This should be supported by growing demand for wealth, insurance and retirement products as the UK, Irish, and Canadian populations rapidly age.
… and one more on my radar
In the coming months I’m hoping to add National Grid (LSE:NG.) shares to my ISA as well. It has the qualities needed to continue paying market-beating dividends over the long term, in my opinion.
The power transmission business doesn’t have competitors chipping away at its earnings. Demand for its services also remains stable at all points of the economic cycle. This in turn gives it the financial means and the confidence to pay a big (and usually growing) dividend year after year.
Indeed, its dividend yield rises to 5.8% over the next three years.
Keeping the UK’s electricity grid up and running is expensive business. But I’m confident the FTSE firm still has what it takes to keep its progressive dividend policy rolling, which in turn could make me massive returns over the coming decades.
The post 2 second income stocks I hope could make me an ISA millionaire! appeared first on The Motley Fool UK.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Royston Wild has positions in Aviva Plc and Legal & General Group Plc. The Motley Fool UK has recommended Aj Bell Plc, GSK, HSBC Holdings, Haleon Plc, and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2024
