Passive income can be the engine that supercharges your long-term wealth. Any dividends you receive can be reinvested to accelerate the rate at which your portfolio compounds. With a bit of luck, that snowball effect will then deliver a large and reliable flow of cash that lets you retire in luxury.
There are hundreds of brilliant dividend stocks investors can choose from today. There are plenty too, that offer the ‘holy grail’ of income investing: huge, sustainable dividend yields and strong records of dividend growth.
Here are seven dividend stocks I think deserve consideration for a starter passive income portfolio. With an average 6.6% dividend yield, a £20,000 Stocks and Shares ISA invested equally across them would deliver £1,320 in dividends this year alone.
Yields AND growth!
The shares are:
| Dividend stock | Forward dividend yield |
|---|---|
| Rathbones Group | 6.1% |
| Henderson Far East Income | 9.7% |
| Severn Trent | 4.3% |
| Standard Life | 6.4% |
| Primary Health Properties | 7.8% |
| Safestore Holdings (LSE:SAFE) | 5.3% |
| Chesnara | 6.9% |
The dividend yield on all these stocks comfortably beats the FTSE 100 long-term average of 3%-4%. But that’s not all: as you can see, each of these shares has at least a decade of continuous dividend growth.
| Dividend stock | Consecutive years of dividend growth |
|---|---|
| Rathbones Group | 16 |
| Henderson Far East Income | 18 |
| Severn Trent | 10 |
| Standard Life | 10 |
| Primary Health Properties | 29 |
| Safestore Holdings | 16 |
| Chesnara | 21 |
Building a £609,533 portfolio
But here’s the thing, dividends are never guaranteed. Even the most reliable high-yield share can slash payouts when circumstances change. Shell hadn’t cut dividends since the 1940s until the Covid-19 crisis six years ago. Then came the pandemic when oil prices plunged, hitting profitability.
Yet with a dividend portfolio like the one I’ve suggested, an investor can better protect themselves against dividend disruption and enjoy a stable passive income stream. My own portfolio’s spread across more than 20 dividend-paying companies. But as I say, I think a seven-share portfolio like this is a good way to get started.
And I think it could significantly boost an investor’s long-term wealth. Based on an average 9.5% average annual return — comprising a 6.5% dividend yield and share price growth of 3% — this portfolio could turn a £500 monthly ISA investment into £609,533 after 25 years.
A top passive income opportunity?
Safestore’s a top share that’s actually designed to deliver a steady flow of dividends to its shareholders. At least 90% of annual rental earnings must be paid out, reflecting its status as a real estate investment trust (REIT).
This alone doesn’t guarantee a large and growing dividend. Earnings at the self-storage specialist can slump if consumer spending weakens. In these scenarios, occupancy levels can dip and rental growth plunge.
Yet Safestore’s focus on urban locations with limited supply helps reduce this threat. Like-for-like revenues growth of 3.5% in the first half underlines its resilient and strong execution. Looking longer term, I think the firm’s ongoing expansion in a growing sector should continue to underpin a large and expanding dividend.
What income stock do we like better than Safestore Plc right now?
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Royston Wild does not hold any positions in the companies mentioned.
