Income shares look primed to make decent investments as the stock market recovers. I arrived at that conclusion because stock prices have been weak in the bear market we’ve suffered.
However, in many cases, dividend-paying companies have been delivering robust trading statements. And dividends look set to continue.
Defensive operators
My preference is for businesses with defensive qualities. I think they are better placed to support a stream of shareholder dividends for years to come. The alternative would be to pick high-dividend payers among the more cyclical enterprises.
However, such businesses tend to be battered by changing general economic conditions. And we often see volatile share prices, cash flow, profits and dividends.
I’m keen on smoking product makers British American Tobacco, at 3,431p, and Imperial Brands, at 1,855p. They both keep delivering decent trading updates and sport forward-looking yields just above 7% for 2023.
The sector’s not for everyone because of the health-damaging nature of the products. And there are some risks. For example, tobacco volumes are in a long-term decline. And both firms carry a fair amount of debt. On top of that, the industry attracts keen regulatory focus.
Nevertheless, I’ve got these income stocks in my long-term diversified portfolio. And I’m hoping the robust cash flows enjoyed by each business will fuel strong shareholder returns in the years ahead.
Investing in market activity
I’m also holding trading platform provider IG Group. With the share price near 796p, the forward-looking dividend yield is above 6% for the trading year to May 2024. The business has a good multi-year record of dividend payments and tends to thrive when the markets are volatile. And we’ve seen plenty of that.
In March, IGG reported its “highest quarterly revenues of the year”. And the directors reckon the outcome arose because of “continuing momentum” and a strategy “to expand and diversify”. Meanwhile, a share buyback programme started in July.
I’m optimistic that steady trading will drive strong income returns for me in the years ahead. Although, as with any business, nothing is guaranteed.
Renewables
As the name suggests, Foresight invests in ground-based solar assets. And I reckon the sector will continue to form an important part of the UK’s energy mix far into the future.
The company has a strong multi-year record of delivering steady dividends for shareholders. And I’d buy the stock now for more of the same. Although it’s worth me bearing in mind that any business can miss its estimates because of operational and other challenges.
Within the renewables theme, I’d also invest in Renewables Infrastructure Fund for dividend income. The company invests in onshore wind, offshore wind, solar photovoltaic (PV), and battery storage projects in the UK, Ireland, France, Germany, Spain, and Sweden.
The dividend record is steady. And with the share price near 136p, the forward-looking yield is running around 5% for 2023. We can find out how the business has been going with the interim results due on 4 August. But I’m optimistic.