If the pleasant weather so far this week is anything to go by, it could be a summer of fun and sun. Aside from personal plans, I also have my eye on income shares at the moment that I want to buy ahead of the summer. Not only can I get a kickstart on earning passive income from dividend plays, but I can also help to offset rising inflation. Here are two companies that I’m thinking of adding to my portfolio.
Short-term action, long-term buy
The first income share is Royal Mail (LSE:RMG). The company is in the news today, given the release of full-year results. With a share price drop of 13% today (down 47% over one year), something clearly didn’t go to plan. From reviewing the report, the fall in reported profit before tax of 8.8% versus last year didn’t help.
Operational challenges flagged up included Covid-19 and labour issues that hampered performance. I accept this, but feel they’re short-term problems that won’t be present when I look years into the future.
I was impressed by the fact that even though parcel volumes fell by 7% versus last year, they were still up 31% in the pre-pandemic 2019/20 year. This shows that the company is still ahead of where it was before the pandemic, with momentum.
The business also prioritised the dividend payment in line with policy, despite the fall in profits. It currently has a dividend yield of 6.66%, which has jumped today due to the share price fall. I think this income share will be able to bounce back in coming years and so see it as a buy for me.
An above average income share
The second income share I think I’m going to buy is TP ICAP (LSE:TCAP). I’ve been watching this stock for a while, as it’s more of an unusual financial services stock. It’s an interdealer broker, which essentially means it acts as an intermediary between banks and other players. It helps to execute trades in a variety of different asset classes and acts as a middleman, earning a cut in the process.
Volatility is good for business, and this is one reason why Q1 revenue jumped by 14%. Although the share price is down 42% over the past year, the bulk of this move came last year due to lower action in financial markets.
This move lower has helped to push the dividend yield up to 7.68%, well above the average yield for both the FTSE 250 and FTSE 100.
With my expectation that the stock market will remain volatile for the rest of the year, I think that this income share will continue to pay dividends. One concern I have is that the business operates in a very niche area of finance. With that in mind, I don’t ever see the company becoming massive, as there simply isn’t enough business to reach that scale.