A dividend stock is a share that pays out a portion of profits to shareholders on a regular basis. If I own shares in the company, then I’m entitled to this dividend. Ideally, I want to own the stocks that pay generous dividends, while maintaining an acceptable level of risk.
Taking advantage of the professionals
One area that’s offering attractive yields at the moment is financial services. Fund managers and asset management companies are catching my eye.
Some examples include Jupiter Fund Management (with a dividend yield of 8.34%), Ashmore Group (7.19%) and Apax Global Alpha (5.96%).
Depending on what kind of specific investments I’m looking for, I might decide to choose one or all of the above to include in my dividend portfolio. By investing in Jupiter, I’m getting access to the overall business that runs various funds within it.
Alternatively, Apax Global Alpha is a specific investment trust. It focuses on investing in businesses that are privately listed.
From my point of view as an income investor, I don’t mind too much whether I pick a specific fund or a company that manages a lot of funds.
A specific fund will want to pay out dividends as this will likely be specified in the mandate. On the other hand, a fund management company is able to benefit from the performance of all the funds that are in operation. This should enable it to pay out a dividend based on the overall performance.
More dividend stock options
Another part of the market that has some interesting dividend stocks is insurance. This is quite a wide sector, but two specific examples I like are Direct Line Group and Moneysupermarket.com. The current dividend yields are 8.22% and 5.94%, respectively.
I recently wrote about Direct Line Group. In the latest results, operating profit increased to £581.8m from the previous year’s figure of £522.1m. When combined with a strong grip on expenses, this makes the company an attractive pick for a dividend stock.
I know that insurance providers operate on slim single-digit net profit margins. The tough competition and regulation in the UK can pose a risk as customers can easily change and move elsewhere.
As for Moneysupermarket, it technically isn’t an insurance provider. Rather, it’s a price comparison site that includes searches for home, car and other forms of insurance.
I think the travel and home services areas will see high demand this year as we move out of the pandemic. However, the company will have issues in the energy space, as a lack of available options due to high prices could hamper the division.
I like all five dividend stocks mentioned, and am considering buying them all for my income portfolio. The above average yields should help me to outperform the FTSE 100 and FTSE 250 average. They could also help me to offset the erosion of my cash caused by high inflation.