The UK stock market’s a place where some invest their money in the hope that it will appreciate in value. When trying to figure out the best strategy to use, many initially determine their target rate of return. So if someone wanted to target a 10% yield, what would be the process in trying to make this a reality?
Mixing income and growth
There are two main ways to make this possible. The first would be to pick high growth stocks, with the potential for the share price to appreciate in value over the coming years, and for this to average out at 10%. The other is to pick dividend stocks. Based on the dividend yield, it’s possible to include different options which would then average out at a 10% yield from the income paid out.
There’s no guarantee that 10% will be achieved over time. Share prices can fall as well as rise, and dividends can be cut. To try and reduce the risk of underperforming, one idea is to mix up the portfolio with growth and income shares. Not only this, but having a spread of companies provides diversification. That way, even if one company really disappoints, it’s not fatal for the overall goal.
Although 10% for growth shares can be very achievable, a 10% yield from dividend shares is harder. The small pool of options could restrict an investor, but this doesn’t mean that it’s not worth pursuing. That way, income can be banked and provides cash flow, versus growth stocks where the capital remains tied up as it hopefully appreciates in value over time.
A hot area of the market
One example of a stock to consider is Raspberry Pi (LSE:RPI). I bought the stock recently, based on the high growth prospects I believe it has.
The stock’s up 77% in the past year, driven by strong financial results that are showing high demand for semiconductors and chips. In fact, in the latest full-year results, these divisions have officially outpaced physical board sales, marking a historic business shift.
It also upgraded full-year adjusted profit forecasts to “significantly ahead” of initial market projections, with interim core profit nearly matching previous full-year targets.
This all bodes well for further share price gains ahead, as demand for cheaper and flexible computing keeps rising. More businesses are looking for ways to add intelligence to everyday products without relying on expensive systems.
One risk is that the firm’s still small relative to the big tech rivals. Competition to take things to the next level is high, and there’s a risk that growth expectations become overly optimistic. Even with this factor, I still think it’s a stock people should consider as part of a high-growth strategy.
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Jon Smith owns shares of Raspberry Pi.
