Passive income from dividend stocks is a core part of my investing strategy. As inflation reaches levels not seen in decades in the UK, I’ve shifted my portfolio more towards dividend stocks and away from growth stocks. One reason for this is that inflation and higher interest rates can impact growth stocks. In some cases businesses will amend or pause plans for growth due to higher borrowing costs, while investors may seeks to take their profits and seek other stocks offering near-term returns in the form of dividends.
Broker AJ Bell said it expected the average dividend yield to be around 4.1% in 2022. In that case, I’d need just under £300,000 to deliver £12,000 a year, or £1,000 a month in dividends. However, if I look at higher-paying dividend stocks, I can achieve £1,000 a month with considerably less money invested. If I invested £200,000 in stocks averaging 6% dividend yields, I could receive £1,000 a month in payments.
So, here are some of the stocks I’ve bought or am considering to supercharge my passive income.
Ultra-high-dividend yields
Rio Tinto is expected to be the index’s single biggest dividend-payer in 2022, paying out £7.4bn. While Persimmon will be the highest-yielding stock at 11.2%. The FTSE 100 mining giant has seen impressive growth this year on the back of soaring commodity prices. If I were to buy today, I could expect a 10% dividend yield. The miner currently has a price-to-earnings ratio of 5.6%. But it’s worth noting that the stock has fallen this week after raising concerns about geopolitical challenges and iron ore shipments.
Housebuilder Persimmon is the highest payer on the FTSE 100. Buying today, I can expect an impressive 10.4%. Inflation, interest rate rises, and the cladding crisis have all weighed on the share price. But I’m confident of the long-term prospects here.
Meanwhile, life insurance specialist Phoenix Group is offering a dividend yield of 7.8%. Payments are unlikely to decrease in the near future as the dividend was only upped in March. For me, this blue-chip insurer is a good long-term bet for my portfolio although regulatory changes could shake up the market and impact profitability.
High-dividend yields
As Persimmon shows, housebuilder stocks can be a good place to look for strong dividend yields and plenty of growth potential. Vistry Group is an attractive passive income opportunity. Buying at today’s price, I can expect an annual yield of 6.6%. The dividend has been well covered in recent years. Barratt Developments‘ pre-tax profit rose to £812.2m in 2021, up from £491.8m in 2020. Its 2021 performance was comparable with pre-pandemic figures, buoyed by a strong property market. If I were to buy this stock today, I could expect a 5.6% dividend yield. Crest Nicholson is another favourite of mine, offering a 5% dividend yield.
But like any industry, there are risks. Inflation and interest rate rises may impact demand for homes, while the ongoing cladding fiasco has continued to weigh on share prices. Despite the headwinds, I’m confident that demand for homes will remain strong in the long run.