A Stocks and Shares ISA is the ideal way to invest in dividend stocks because all your income will be entirely free of dividend tax and income tax. Plus there’s no capital gains tax on share price growth either.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
There are some really high-yielding stocks on the FTSE 100 and FTSE 250 today, paying income of more than 7%, 8%, or 9% a year. An income-seeking investor with £2,000 at their disposal might consider spltting it between these two.
Legal & General Group
The first is a stock I own, FTSE 100 insurer and asset manager Legal & General Group (LSE: LGEN). This offers the highest yield on the blue-chip index at 7.7%, and the board’s committed to increasing shareholder payouts by 2% a year. It’s also rewarding investors with its biggest share buyback ever, worth £1.2bn.
Legal & General’s one of the most popular stocks in the UK, but does have one big disadvantage: its shares have underperformed for some years. In fact, they’re trading at similar levels to a decade ago. So while investors have got lots of income, the growth hasn’t been up to much. But it’s shown signs of life lately, and it’s up 12% in the last year.
Legal & General’s board is working hard to streamline the business, and give it more focus, but it still has some way to go. Profit growth has been sluggish lately and ultimately, that drives the share price. As an asset manager, it’s vulnerable to wider stock market volatility. But that high yield looks secure, and it’s worth considering as a result.
I think the shares should swing back into favour at some point but, for now, treat any share price growth as a bonus.
Henderson Far East Income
Fancy an even bigger that yield? Then you might be interested in FTSE 250 investment trust Henderson Far East Income (LSE: HFEL).
The trust aims to generate a steadily rising annual dividend plus capital appreciation from a diversified portfolio of investments from the Asia Pacific region. Today, the trailing yield’s an absolutely stunning 9%. Better still, it has an impressive record of increasing shareholder payouts. It’s done so every year this millennium.
Again, the share price has disappointed. That’s often in the case with high-yielding stocks, where the dividend grows but the shares stagnate.
The shares are down 15% over five years, amid wider emerging market underperformance. But the sector has swung back into favour lately, and Henderson Far East Income share price is up 25% in the last 12 months.
Emerging markets have been boosted by the weaker US dollar, which reduces the cost of servicing their debt burdens, and the recent tech sell-off. They could slow if those trends go into reverse.
While the trust’s performance may remain bumpy, history suggests the income should be solid. Unfortunately, it’s a little expensive trading at a premium of 5.7% to underlying net asset value.
Somebody who split their £2k between this two would get a stunning yield of around 8.35%. That £2k should generate income of £167 in the first year. Worth considering, just understand the risks.
Should you invest £5,000 in Legal & General Group Plc right now?
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Harvey Jones owns shares in Legal & General Group.
