Owning dividend shares is one way to boost my passive income. High-dividend shares can offer me an attractive source of earnings without working for them.
Dividends are never guaranteed, though, and share prices can fall. So I always spread my investment across a variety of shares. Here are two high-dividend shares I would happily buy for my portfolio today.
Imperial Brands
The tobacco industry is controversial. Many investors shun it because of the harm its products inflict on millions of customers. For those who are willing to invest, however, the industry has attractive economics. High cash flows can help support meaty dividends.
There are a number of tobacco companies I would consider buying for my portfolio, including US-based Altria and Philip Morris International alongside UK peers British American Tobacco and Imperial Brands.
Of these, the highest-yielding is Imperial Brands. Its dividend yield is 8.3%. That means that if I invested £1,000 in M&G shares today, I would hopefully receive £83 of dividends annually.
High-dividend shares
Why is the Imperial yield higher than at key competitors? It has pushed less aggressively than them into non-cigarette formats like vaping, so declining cigarette sales could pose a bigger threat to its future revenues and profits. On top of that, Imperial’s brands like Rizla and John Player Special are strong but not as iconic as competitor-owned names like Marlboro and Lucky Strike.
But I think that is already factored into the share price and yield.
While Imperial’s brand portfolio might not be the best in the business, I think it is good enough to help the company make substantial profits. Last year’s post-tax profit was £2.9bn. I also like Imperial’s large geographic reach. It may need to work harder to develop a post-cigarette future at some point, but waiting for competitors to establish the market first could actually save it substantial upfront marketing expenses. Imperial is among the high-dividend shares I would consider for my portfolio today.
M&G
Another share I would buy for my portfolio is investment manager M&G (LSE: MNG).
The M&G yield is 8.4%, meaning it offers me a similar payout level as Imperial. I do not see the same risk of declining end markets as in tobacco. If anything, I expect customer demand for financial services to grow over time. But that can bring its own challenges, such as increasing competition. That could squeeze profit margins.
I see M&G’s well-established brand and long history as a competitive advantage when it comes to attracting and retaining customers. It deals with such large sums of client money that even small commissions could help it turn a handy profit.
Management has said it plans to maintain or grow the dividend in future. That is never guaranteed but hopefully the economics of the business will enable the company to deliver on this plan. That is why I would feel happy buying more M&G stock to add to the high-dividend shares in my ISA.