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Having dividend stocks in an ISA can help me build wealth in two ways.
In the long run, if I buy the right stocks at an attractive price, I hope to see big gains. Along the way, shares can earn me a little money. Investing a £20k ISA in shares yielding an average of 5% should benefit me £1,000 each year in dividends.
Here are three FTSE 100 shares each yield 5% or more that I think investors should consider buying.
WPP
Advertising has had a challenging few years. There is still a risk that the weak economy will lead to advertisers spending less, which could be bad news for ad agency networks, WPP (LSE: WPP).
Still, the company has been doing well lately in a tough environment. First-half revenue was basically down year-on-year, while operating profit rose 38% to £423m.
The announced sale of its majority stake in FGS Global is expected to generate a net profit after tax of more than £600m, helping to improve the balance sheet. The short-term dividend was slightly underwhelming with WPP yielding 5%.
At 24% less than five years ago, I think WPP’s share price is reasonable for a company with a strong position in its industry, an extensive global network, and an increasing digital focus.
Aviva
Insurance Aviva (LSE: AV) may not seem like an exciting share, but that’s part of its appeal to me. It operates in a proven business environment that is likely to see long-term demand, has a large customer base, has proven to underwrite profitably, and has a strong brand identity that helps it market its services cost-effectively.
Aviva’s dividend yield is around 7% and it has been increasing its dividend per share since it was cut a few years ago.
Focusing more on the UK domestic market gives more efficiency, but by linking the company’s operations closer to the UK insurance market I think it increases some risks, for example, if competitors try to gain market share by competing on price.
As a long-term investor, I see Aviva as an unexciting but solid business that I think can build on its strengths for years or decades to come.
Vodafone
paid a dividend of 10.1% compared to the previous trading day Vodafone (LSE: VOD) could be an incoming cash spinner. Things are about to change, however, as the company has announced plans to reduce its annual payout per share.
Still, that would leave it yielding more than 5%.
Dividend cuts, asset sales in recent years, and less debt on the balance sheet than before mean that Vodafone’s dividend, after the cut, looks more sustainable than it has for years.
The company has a well-known brand and a market-leading position in many markets. It has hundreds of millions of customers in Europe and Africa. I think its mobile money services in Africa could be a big growth driver.
Vodafone has disappointed investors before and the one risk I see is a decline in revenue streams due to the asset sales I mentioned above. But it remains a formidable business with huge potential to generate income.
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