I like the dividend potential that comes with owning certain shares. When I look for shares to buy for my portfolio, I try to identify companies I think have attractive future prospects. But if they also can offer me passive income now, that often makes them more attractive to me.
Here are two UK shares I would consider adding to my portfolio right now that both have a dividend yield of at least 7%.
Legal & General
The first share is one I like the look of at the moment and I have already bought it for my own portfolio this month. The company in question is financial services provider Legal & General (LSE: LGEN).
I think the long-term economics of the insurance industry are attractive from an investment perspective. Demand tends to be robust – certain types of insurance are mandated by law – and providers such as Legal & General have long experience that should help them price risks suitably.
As well as its long history, Legal & General benefits from a well-established brand and large customer base. That gives it an advantage compared to upstart rivals, as it can attract customers without having to spend as heavily on marketing.
8%+ yield
The company also looks attractive to me from an income perspective. At the moment, its dividend yield is 8.1%. It has set out a plan to increase dividends annually over the next several years, although dividends are never guaranteed.
There are risks though. The pensions market has recently seen forced selling of shares as companies scramble to meet demands for cash. Legal & General has told the market that it has not been a forced seller. But the episode highlights one of the risks financially turbulent times can pose for companies that hold large share portfolios, including this one.
Despite the risks, I like the long-term outlook for it and plan to hold my shares for the foreseeable future.
Vodafone
Another FTSE 100 company on the list of shares to buy now for my portfolio if I had spare cash would be Vodafone (LSE: VOD).
The telecoms giant needs little introduction. I like its international reach, large installed customer base and position in an industry I expect will see ongoing strong demand. Despite that, the Vodafone share price has shed 9% in the past year. That has pushed the dividend yield up to 7.4%.
One concern I have about the dividend is whether it will be maintained. Vodafone reduced the size of its payout in 2019. It currently has a lot of debt on its balance sheet. Rising interest rates might mean it decides to use free cash flow to cut borrowings rather than pay out chunky dividends.
Still, if it did strengthen its balance sheet that might help the business’s long-term financial health. With a leading presence in many markets and strong brand, I think the future looks bright for Vodafone.
