For a lot of people, dividends are one of the main reasons to own shares. Whether it is a slow drip or a raging torrent, the extra money coming through the door for no work can be a helpful source of passive income. I want more dividend income and here are three ways I would try to double what I am getting.
Double my portfolio
The simplest way I can think of to double my income from dividends is simply to double the size of my portfolio. If I have a portfolio twice as large, invested in the same way, my dividend income should double.
This may sound obvious, but that does not make it any less true. A lot of people have spare money they could use to boost their dividend income, but put it to some other use.
Even if I could not double the size of my portfolio overnight, I would at least consider doubling my ongoing contributions to it. If I currently invest £100 a month in a Stocks and Shares ISA, for example, raising that to £200 should let me buy twice as many income shares — and get twice as much dividend income from each monthly contribution. Of course, I also have to accept that stocks I have bought more of could decline!
Buy higher-yielding shares
Another way I could double dividend income is by investing in shares with double the yield. For example, I own shares in Victrex. They yield 3.5%. I could sell them and reinvest the proceeds in Legal & General. With the financial services giant yielding 7.2%, the same money ought to be earning me slightly more than twice as much each year in dividend income.
Although I sometimes use this strategy, it comes with a big caveat. I do not think a smart investor should ever buy shares just because of their current dividend yield. A high yield can be a sign that investors do not rate a company’s future business prospects very highly and may be expecting a dividend cut. So I always focus on finding quality companies with shares selling at attractive prices. Only then do I look at yield.
As it happens, I would happily own Legal & General. So I really could double the dividends I earn from Victrex by selling and reinvesting in Legal & General. Even so, I would always also keep my portfolio diversified rather than concentrating it in just a few shares.
Future dividend income growth
Another potential tactic to try and double my dividend income, although it will take longer to materialise, is by investing in shares that I expect to raise their dividends strongly in future.
For example, in the nine years between 2012 and last year, tobacco giant Altria more than doubled its dividend. That is no guarantee of future performance, but I think the strong cash flows generated by owning brands like Marlboro could help fund further dividend growth in coming years. It may not, though, as falling cigarette sales in the US could hurt profits.
But if I can find businesses that should grow their profits I may benefit from dividend growth. Perhaps I could also see capital gains if investors rate the shares more highly thanks to regular increases in the payout. That sounds doubly good to me!