The FTSE 100 currently offers up a 3.6% dividend yield. But as a keen income investor, I’m not content with this. I’m on the hunt for UK blue-chip dividend shares with better yields.
There are plenty for me to choose from too. And critically, plenty of these look in good shape to provide a sustainable and growing dividend over time.
Here I’ll explain why I’m searching for dividend stocks to buy, and reveal one I’m keen to add to my portfolio. It’s grown shareholder payouts every year since the 1960s!
The wisdom of dividend investing
Why is dividend investing so important? For one, it can be critical for people who need to fund their everyday expenses, such as retirees, who need a regular income to add to their State Pension.
I’m not at this stage yet. But the reasons why I’m targeting income-paying shares is also extremely important.
I’m looking to receive dividends so that I can reinvest them to exponentially grow my wealth. This process — known as compounding — is essentially a way of earning money on money that I’ve already made.
When my dividends are used to purchase additional shares, those new shares I own may also provide dividends, which I also then invest. This ongoing cycle over the long term can deliver life-changing returns. Albert Einstein is said to have called compounding “the eighth wonder of the world” for good reason.
It’s also worth remembering that dividend-paying shares have historically outperformed non-dividend-paying stocks over the long term. Income shares tend to be less volatile through the economic cycle, while they can also experience healthy share price appreciation over time.
A Dividend Aristocrat
City of London Investment Trust (LSE:CTY) is a top dividend-paying stock I’m keen on buying soon. This passive income hero has raised shareholder payouts every year since 1966!
The trust concentrates on investing in stable Footsie shares. Today its largest holdings include BAE Systems, Shell, HSBC, and Unilever.
This makes it perfect for delivering stable income to shareholders. Most of the shares it owns have market-leading positions, multiple revenue streams, and robust balance sheets. So they have the potential to deliver robust capital appreciation as well as healthy dividends.
Indeed, many of these FTSE 100 shares are dividend heroes in their own right. BAE Systems — in which the trust has 4% of its capital invested — hasn’t cut its dividend for more than 30 years.
Proud record to continue
On top of this, the FTSE 250 trust’s diversification across many blue-chip shares means it can continue paying large and growing dividends even if one or two of its holdings come under pressure.
Brokers expect City of London to raise the annual dividend for the 58th consecutive time in 2024. And so the dividend here sits at a market-beating 4.8%.
On the downside, the trust’s share price could come under pressure if the FTSE 100 falls in value. But as we’ve already seen, I still think it’s a great way to target a long-term passive income.
