With £20,000 to invest in my 2023 ISA, what would I buy? I think I’d split it five ways, and some would go into dividend stocks.
I want diversification, and I already hold bank, insurance and housebuilder stocks. So I’ll skip those sectors for now.
But I’d be happy for three of my £4,000 portions to go into these three.
Buy the market
When the stock market is down, it could be time to buy asset managers. In this case, my pick is M&G (LSE: MNG).
M&G was split from Prudential in 2019, and its share price has since been volatile. Overall, it’s down 13%.
The fall has helped push the dividend yield up, forecast at 9.8%. The City thinks it should be stable for the next few years too.
Might it not hold up? It might not, indeed. If assets under management face further pressure, profits could slip. So while that uncertainty is there, I think the shares could stay low.
But I rate this as a great contrarian time to buy. I mean, I don’t want to buy when the market is buzzing and M&G shares are flying, do I?
Still going strong
The demise of the tobacco industry has been greatly exaggerated. And British American Tobacco (LSE: BATS) doesn’t seem to have noticed.
Despite a brief 2022 bull run, the shares are down 30% in the past five years.
That puts the yield up to 8.5%. And forecasts show more growth in the coming years.
The risk of the world shunning the weed is a real one. But developing nations are well behind the first world on that score.
In fact, with the rise in wealth in ‘middle-income countries’, there are more smokers globally now than ever. And that helps make British American Tobacco one of the best cash cows on the market.
There’s a danger that people staying away from tobacco stocks could itself keep the price down for a long time. But that just makes the dividends look even better.
Volatile dividends
If I wanted a steady dividend, I’d steer clear of Rio Tinto (LSE: RIO). It’s cyclical, both in terms of dividend and share price.
Right now, we’re looking at a forecast yield of 8.2%. But the annual cash payout has been cut twice in recent years — in 2016, and then in 2022.
It depends on worldwide demand, and commodity prices. And they’ve been very erratic over Covid, and now with tough economies everywhere.
But over the long run, the world just can’t manage without a steady supply of iron, copper, aluminium… and all the other things Rio Tinto unearths.
So I might not buy if I cared much about the short term. But I don’t, and Rio produces essential long-term materials.
Annual income
These three combine to give an average dividend yield of 8.8%. So £12,000 spread equally could net me £528 in annual income. That would be a nice bit of cash.
Will I buy them? It depends how much ISA cash I have this year. But these three dividend stocks are among my favourites.
