If you are investing for your pension, to build future riches or just to put together a tidy nest egg, then you should seriously consider dividend investing.
The art of income investing is that you choose strong, consistent businesses that generate a steady stream of profits. Well-run companies will produce dividends that are well covered by these profits. And if they are growing these profits, you are also likely to gain from a rising share price too.
So here are my three picks for income shares that you should buy right now.
BT Group
General Electric started out in 1892 making industrial dynamos and electric motors. Today it builds jet engines and sells financial services. BT (LSE: BT-A) started out making telephones. It is clear today that it wants to be more than a phone company.
That’s why this firm is increasingly turning its attention to IT services, broadband and pay-tv. This move away from its traditional business was signalled by the launch of BT’s television services, as well as its proposed ÂŁ12 billion purchase of EE. This will make it far and away the leading supplier of both broadband and fixed line telecoms in the UK.
It will then leverage the cash generated from these operations to storm the fortress encompassed by a deep moat that is Sky. It is a bold strategy, though arguably it is also quite a gamble. I think BT can just about pull it off, which why I rate this company a buy. Consensus forecasts a 2016 P/E ratio of 13.78 and a dividend yield 3.20%.
Barclays
While many people would question whether BT can make pay-tv a success, I think that others would say the same about Barclays (LSE: BARC) and its investment banking arm. Differences of opinion on this subject may have been one of the reasons for Anthony Jenkins’ departure from the company.
I think getting the investment bank back to profitability should be at the centre of the new chief executive Jes Staley’s strategy. What has traditionally been a US-centric business must shift its focus to the East. That, accompanied by a highly profitable credit card business and a retail bank that is returning to full health, should be enough to push Barclays’ share price and its dividend yield higher.
The company looks good value, with a predicted 2016 P/E ratio of 11.47, and a dividend yield of 2.53%.
International Consolidated Airlines Group
One of the most dramatic moves in markets over the past year has been the fall in the oil price. I believe that this is not a short-term blip, but a long-term trend in all commodity prices. And I think that the airlines stand to benefit.
IAG (LSE: IAG) owns the British Airways and Iberia brands, and although the share price has already risen substantially, I think it can push further ahead. Income is set to surge ahead as the low oil price has finally made air travel a profitable business once again.
The fundamentals show that this firm is still cheap, with a predicted P/E ratio of 11.08, falling to 8.48, and a dividend yield of 2.39% rising to 3.13%. This is a clear buy to me.