Regardless of whether the UK economy is thriving or not, a Cash ISA is extremely unlikely to assist you in retiring early. Dividend stocks, on the other hand, can help turn retirement dreams into reality.
Today I’m looking at three examples that, thanks to their defensive qualities and/or market-leading positions should continue showering their owners with cash through the coronavirus crisis and beyond.
Steady dividends
Power provider National Grid (LSE: NG) is, ironically, one of the least electrifying members of the FTSE 100. What it lacks in thrills, however, it more than makes up for as a stable source of income.
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Analysts are expecting the Grid to return 50.1p per share in the current financial year (which began in April). When divided by its price, this gives a yield of 5.3%. For comparison, the best instant-access Cash ISA on the market pays a simply horrible 1.19%.
Of course, nothing can be guaranteed given the impact of the coronavirus. In times of strife, even the most defensive companies can be forced to maintain (rather than increase) the dividend or reduce it. If things get really shaky, it may be cancelled completely.
Even so, I’d be surprised if National Grid were to join this group for the foreseeable future.
Always in demand
Pharmaceutical giant GlaxoSmithKline (LSE: GSK) is another stock that should continue paying holders an income in the aftermath of the pandemic.
Like National Grid, Glaxo benefits from being in a highly defensive sector. The need for healthcare won’t disappear and nor will the company’s earnings stream.
Those already holding the stock may begrudge the company’s decision to keep the dividend at 80p per share since for what seems like forever, but ongoing investment in the business makes perfect sense. Besides, this still translates to a chunky yield of 4.7% as things stand.
As a sign of just how reliable the market believes the company is, Glaxo’s shares have bounced back hard in recent weeks. Even so, they still change hands on less than 15 times earnings. For such a reliable dividend payer, that looks a pretty good price to me.
Strong finances
A final pick of great dividend-distributing stocks is FTSE 250 online trading firm and market leader IG Group (LSE: IGG), particularly after yesterday’s trading update.
Thanks to the incredible volatility seen in recent weeks, IG has seen a record number of applications from people wanting to make money using its platform. As a result, revenue has been “exceptionally high“, according to the company.
Of course no one — including IG — can say how long the coronavirus crisis will last. What we do know if that the company boasts a very strong balance sheet and remains committed to paying out 43.2p to holders in the current financial year. That gives a stonking yield of 5.8% — over three times what you’d get from the aforementioned Cash ISA.
As a holder of the stock, I’m not complaining!
Don’t forget to reinvest!
Dividend investing is arguably one of the least risky strategies for growing rich from the stock market.
That said, dividends will only help to bring your retirement date closer if you opt to reinvest rather than spend what you receive. Doing this ensures more money can compound over time.
Learn to discipline yourself and reap the rewards. Ditch the Cash ISA for anything but ‘rainy day’ savings.
