Finding high-quality dividend stocks for a Stocks and Shares ISA is a great way to make some extra money.
Imagine making an extra £357 a week, and the only work needed to achieve that is research and picking the best shares for this strategy.
Well, let’s see how an investor can make this extra passive income over time.
Illustrating the passive income path
If a Stocks and Shares ISA is to make an extra £357 a week, this equates to £18,564 annually.
Now, many dividend shares can be used to make this happen. For example, Legal & General’s dividend yield of 7.6% is pretty enticing. Or Rio Tinto’s 4%, which offers a slightly lower payout, but gives investors exposure to metal prices like copper that are imperative for AI.
However, in this article, I’ll use BP (LSE:BP.) shares with their yield of 5.1% to illustrate how a second income could be made.
To make £18,564 a year, an investor would need £361,167.30 worth of the company’s shares. At BP’s current share price of 499.18p, that represents 72,352 shares. I know that’s a lot of spare money that most readers won’t have lying around.
Furthermore, I know many will think that’s too much money to have in a single company’s shares. And, BP’s dividends aren’t necessarily guaranteed either.
For example, while great for global peace, a deal by the US and Iran to end their war will likely see oil prices fall. This isn’t so great for the oil giant, which has been benefiting from rising oil prices. Therefore, this deal could hurt its profit.
So, it might be beneficial for investors to create a diversified portfolio in their Stocks and Shares ISA by considering other stocks, such as Legal & General and Rio Tinto.
This helps limit potential disruption from BP shares, for example, and minimise the effect in case the company isn’t able to pay its dividend.
That said, I still think the oil giants’ shares are a great option for a passive income portfolio.
An enticing combination
The reason I like BP shares as a dividend opportunity is because of the combination of them possessing a high yield along with a very low valuation.
Right now, they’re trading at a dirt-cheap forward price-to-earnings ratio of 7.2.
Moreover, while there are certainly risks stemming from falling oil prices, the US-Iran deal remains fragile. And, global oil inventories, which act as a buffer in case of an oil crisis, have been depleted during the conflict.
Therefore, if oil prices fall, there’s also a possibility of them adjusting back up later on.
One final point to note about the company’s shares is that ever since COVID, when it cut its dividend, the firm has been increasing its payout per share. While not guaranteed, it may continue to do so, which could help investors see their dividend income rise over time.
I already have a few other income stocks that I like. However, I still think BP shares are worth investors considering further.
Should you invest £5,000 in Bp P.l.c. right now?
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Muhammad owns shares in Rio Tinto.
