I like these small-cap dividend stocks for passive income in a Stocks & Shares ISA

Paul Summers — Thu, 23 Jan 2020 11:54:11 +0000

Thanks to sluggish wage growth, more and more people in the UK are looking to top-up their monthly income. One of the most convenient ways of doing this, at least in my opinion, is through buying stocks that return a proportion of profits to their owners.

Aside from being a relatively fuss-free way of making extra cash, it’s worth highlighting that holding dividend-paying companies within a Stocks and Shares ISA also means investors aren’t taxed on what they receive.

With this in mind, here are two companies from lower down the market that I think are great candidates for income-focused portfolios.

Simmering nicely

Strix (LSE: KETL) is a business I’ve covered many times now and one that features in my own ISA.

For those unfamiliar with the name, this is a firm that designs, manufactures and supplies kettle safety controls and water filtration products. As boring as that may sound, it’s not let investors down so far.

Since arriving on the market in August 2017, the stock has increased 42% in value. For comparison, the FTSE 100 is up just 3% over the same period. What’s more, today’s trading update suggests this outperformance is likely to continue.

Despite Brexit and the US/China trade scrap, Strix stated that the global kettle market “remained resilient” in 2019, growing by 4.5%. As a result, the £350m cap predicts adjusted post-tax profit will be “in line with market expectations”. Due to strong cash generation, net debt is also expected to fall to around £26.3m, down significantly from almost £46m in 2017.

Strix plans to launch 12 new products in 2020 and open a new factory in China in January 2021, suggesting further growth is on the cards. Nevertheless, it’s the dividend payouts that I think make the minnow a worthy hold.

The company has pencilled in returning a total of 7.7p per share to holders for 2019, equating to a yield of 4% at the current share price. That’s attractive, particularly as the shares trade on just 12 times expected FY20 earnings.

Strix won’t shoot the lights out, but it should continue simmering.

Strong recovery

Another company worthy of attention from second-income seekers is trading platform provider CMC Markets (LSE: CMCX).

Having faced the considerable headwind of increased regulation in recent times — a development that has hammered its share price — today’s Q3 trading update suggests the worst might be over.

Net operating income “continued to outperform expectations” in the three months to the end of December and was attributed to the company retaining more clients compared to the first half of the financial year. Despite increased operating costs, CMC said that it now expected the former to be “ahead of the upper end of the current range of analyst forecasts” (£184.1m to £189.3m).

Having rallied strongly in recent months, the shares were trading flat this morning, suggesting that a lot of this news was already priced-in. Nevertheless, a price-to-earnings (P/E) ratio of 13 for the current year doesn’t feel excessive given the potential of its stockbroking business and white label partnerships with banks.

Like Strix, however, it’s CMC’s dividend credentials that I’m most interested in. The small-cap is forecast to return 6.23p per share in 2019/20, giving a yield of 3.8% covered twice by profits. With the best Cash ISA paying out just 1.31% in interest, I know which I’d pick.

The post I like these small-cap dividend stocks for passive income in a Stocks & Shares ISA appeared first on The Twelfth Magpie.

More reading

Paul Summers owns shares of Strix Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Want a second income? Here’s what I’d do

Rupert Hargreaves — Sat, 04 May 2019 07:15:10 +0000

Do you want to build a second income stream and earn money while you sleep? Of course you do. That’s why I’m going to explain how I plan to create a second income stream using high-dividend stocks and low-cost tracker funds.

The power dividends

There are many different strategies you can use to create a second income. Everything from operating an online store to writing a book and buy-to-let investing. All of these have their benefits and drawbacks, but I believe the best way is to buy shares in blue-chip stocks.

By investing in businesses that are already established and have a leading position in their respective markets, you don’t have to do any extra work. You can just sit back and let the money roll in. What’s more, by investing in a basket of blue-chip stocks, you can build a well-diversified portfolio pretty quickly. And you don’t have to worry about things such as whether or not your business will be able to survive in the event of a no-deal Brexit.

Start investing

You only need a few hundred pounds to start investing, which means you could be generating a second income in just a few days if you already have the money saved. Stocks usually distribute dividends twice a year, one sizeable final dividend payment and an interim distribution, although some companies do pay out quarterly. Some funds pay out a monthly distribution to shareholders as well.

And if you do have that amount to start investing today, I highly recommend buying the FTSE 100 index as a starting point as I firmly believe that this is one of the best dividend investments in the world.

With a dividend yield of 4.3% at the time of writing, the index will give you an instantly diversified dividend portfolio at the click of a button. If you are willing to do a bit more research, there are companies in the index that currently support dividend yields of 6% or more.

Dividend champion

Take FTSE 100 dividend stalwart British American Tobacco for example. At the time of writing, this dividend champion supports a dividend yield of 7%, implying that if you buy the stock today, for every £100 invested, you could see £7 a year of income.

If that’s not enough for you, Persimmon, another FTSE 100 dividend champion, currently supports a dividend yield of 10.5%, implying that for every £1,000 invested in this home builder, you could see £105 a year in extra income.

These are just two examples, but I think they clearly show how easy it is to build a second income stream with dividend stocks.

So, what are you waiting for? If you have a few hundred pounds saved and want to build yourself a second income stream, it makes a lot of sense to go out into the market and buy a portfolio of high-yield, blue-chip income stocks.

The post Want a second income? Here’s what I’d do appeared first on The Twelfth Magpie.