I am constantly on the lookout for the best dividend stocks for my portfolio. These stocks can make me a passive income. One pick I am seriously considering for my holdings is IG Group (LSE:IGG). Here’s why.
Trading surge
The pandemic led to a surge in online trading. With furlough and a lack of social events occurring, people had a bit of spare cash in their pockets and lots of extra time on their hands. Many are now using cheap, quick online trading platforms to buy and sell stocks for their own investments.
IG Group provides a high-functioning, low-fee platform where investors can trade everything from stocks and bonds, to CFDs and indexes.
As I write, IG Group shares are trading for 869p. At this time last year, the shares were trading for 750p, which is a 13% return over a 12-month period. The shares reached close to 950p at a few instances last year, which means shares are down close to 10% from this point at current levels. Many tech stocks, which includes IG Group, have seen their prices drop in recent months due to macroeconomic and geopolitical factors.
Risks involved
The primary risk with dividend stocks is the fact that dividends can always be cancelled without much notice by a firm. They are never guaranteed.
IG Group is operating in a very saturated market. Many firms are vying for market dominance in the online trading platform arena. This could hurt performance and returns.
IG Group also specialises in leveraged trading, often referred to as spread betting. Spread betting is classed as gambling, here in the UK. Tighter regulations could hurt IG Group and any shareholder returns if performance was significantly impacted. This is a risk towards IG’s investment viability it cannot control either.
A dividend stock I’d buy
IG Group looks like a good option for my holdings to help me make a passive income. Firstly, at current levels, the shares look dirt cheap, with a price-to-earnings ratio of just eight!
At current levels, the FTSE 250 incumbent’s dividend yield stands at over 5%. It is worth mentioning that the FTSE 100 dividend yield average is between 3% and 4%. IG Grouop also has a consistent track record of dividend payments.
IG Group’s business model looks sound to me as well. It takes a cut off the top of every trade, which makes it a healthy enough income for it to be an attractive dividend stock. Furthermore, it has diversified in recent times too. It has added other wealth options to its arsenal of products, such as ISAs, smart portfolios, and other low-risk products. This should help growth in the future and keep shareholder returns flowing.
Right now I think IG Group is an under-rated dividend stock trading very cheap and sporting a juicy dividend yield. I would add the shares to my holdings to help me make a passive income.
