Investing in UK dividend stocks is a brilliant way to target a high and rising passive income for retirement. Almost anybody can do it, provided they have a little interest in investing.
They key to success is to start early, stick with it, and accept there may be some short-term volatility along the way. It’s worth it to bag the superior long-term returns available from investing in shares.
Every year, adults can put up to £20,000 into a Stocks and Shares ISA. Here I’ll show how could a single £20k investment could potentially turn a single year’s allowance into an income worth more than £25,000 a year.
Here’s how you can build wealth from shares
I’ll never invest in just one company. Even the strongest businesses can hit difficult periods, cut dividends or disappear altogether. That’s why I spread money across different sectors and keep a close eye on how each holding is performing over the years.
Let’s say somebody aged 35 invested £20,000 then left it untouched until they retired at 67, giving it 32 years to grow while reinvesting every single dividend.
Over the last decade, the average annual Stocks and Shares ISA returned 9.64% a year, according to advisory group Unbiased. If someone matched that, their original investment would grow to £380,223. That’s incredible, from just £20k.
Now let’s say our individual spread that money across three high-yielding FTSE 100 shares in three different sectors.
Today, insurer Legal & General Group offers the highest yield on the entire blue-chip index at 7.45%. LondonMetric Property (LSE: LMP) is in second place at 6.59% while housebuilder Barratt Redrow yields 6.04%. Together, the average yield is roughly 6.7%. From a portfolio worth £380,223, it could generate annual dividend income of around £25,475, without touching the original capital, which can be left to — hopefully — grow in value.
Nothing here is guaranteed. Investment returns vary, dividends can be cut, companies can be taken over or, in the worst cases, fail altogether. That’s why I suggest always building a diversified portfolio and reviewing it regularly rather than simply buying and forgetting.
One dividend stock to consider
LondonMetric Property may be an unfamiliar name. This is a real estate investment trust, or REIT. It owns a diversified £7.6bn portfolio of commercial property, with a focus on logistics, healthcare, convenience retail and leisure.
REITs must distribute at least 90% of their taxable profits to shareholders. LondonMetric has a solid track record of increasing its dividend for 11 consecutive years, giving investors a high and rising income.
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.
The LondonMetric share price has struggled lately, falling 3% over the last year and 23% over five years. Higher interest rates have made borrowing more expensive and reducing demand for commercial real estate. Last year, net rental income nonetheless climbed an impressive 16.6% to £455.3m.
The shares could recover nicely when interest rates finally start falling again and the economy picks up, although nobody can predict exactly when that might happen. For anybody prepared to accept those risks, LondonMetric could be worth considering as one part of a balanced portfolio. Otherwise there are plenty more high-yielding UK shares to choose from.
Should you invest £5,000 in LondonMetric Property Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if LondonMetric Property Plc made the list?
Harvey Jones owns shares in Legal & General Group.
