Were I reaching the end of my working career with nothing in the bank, I’d be looking to give myself a little boost. And I’d do it by investing in dividend stocks.
A volatile market means there are much better opportunities than there were a couple of years ago. Right now, I think there’s a great chance to start generating some significant passive income.
Passive income
The best thing about dividends, in my view, is that the income that investors get from them is genuinely passive. Shareholders can get paid for just owning the shares and waiting.
This is why I see dividend shares as a great choice for investors approaching retirement. When I finish working, I don’t want to replace one job with another – I want to get paid without having to do anything.
As such, it makes sense that I would want to own a business and have other people work for me. Investing in companies through the stock market is a great way of doing this.
There’s a big range of companies I can buy shares in. These range from big banks to small brick manufacturing businesses.
With £1,000 to invest, I could own part of an oil company, a food manufacturer, and a pharmaceutical business. And I’d get a share of the profits from each of them.
Dividend growth
It’s important to note that dividends are basically never guaranteed for shareholders. A company can decide it shouldn’t pay anything to its shareholders, either because it can’t or because it doesn’t want to.
That’s the main difference between equities and bonds. With a bond, the company has a duty to make its payments – with dividends, management can decide.
Investors therefore have to think carefully about which stocks to buy. The 7.5% dividend yield from Imperial Brands looks attractive, but what happens to the company’s profits if the number of smokers continues to decline?
On the other hand, when a company does well and its profits grow over time, its dividend payments can increase. This doesn’t happen with bonds.
United Utilities, for example, has paid out more to shareholders each year for over a decade. Yet with this type of business, it’s always important to keep an eye on regulation.
Stocks to buy?
So which shares would I buy today if I were looking for a quick boost to my retirement income? Two stand out to me.
In the FTSE 250, I think Ibstock looks attractive. The brick manufacturer currently has a 5% dividend yield and operates in an industry that’s generally undersupplied.
There’s a risk a recession will slow housebuilding in the near term. But I think the company has a good enough outlook to be an investmentthat could generate good income for me throughout retirement.
I also like the look of Kraft Heinz at the moment. The stock is listed in the US, which helps diversify my portfolio beyond the UK, at the cost of some additional risk of currency fluctuations.
The dividend yield is a little lower, but the business is less likely to see demand fall off in an economic downturn. If getting ready to retire with no savings, I’d look to buy the company’s shares.
