Stocks with high dividend yields are the ones that catch my eye. Yet when I’m trying to find shares that can pay me passive income (hopefully) for life, it’s not just the yield I need to focus on. Rather, I’m bothered about the dividend history.
Here’s why, along with some of the stocks I think tick the box.
A proven track record
The best way I can flag up the difference in income potential is to illustrate it with two stocks. Stock X has a dividend yield of 4%, and has a track record of a decade of consecutive dividend payments.
Should you invest £1,000 in H&T Group right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool 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 H&T Group made the list?
Stock Y has a yield of 6%, which has risen substantially over the past year as the share price has fallen. It has a patchy record of paying dividends, which is high during the good times and zero during difficult periods.
Over the coming decades, which stock would I want to bank on? Even though the second company currently has a yield 50% higher than the first, I’m not convinced I can be paid reliable income in years to come. Therefore, I’d be happy to accept a lower yield today, with the confidence that the business has a good track record.
As a side note, I’m aware of the risk of predicting future dividends. These are not guaranteed in any form and depend on the business performance. Even the most reliable companies could cut the payment if it falls on tough times.
Top shares to consider
Based on the above, the logical next step is to filter for the ideal companies with long dividend histories! There are 18 FTSE 100 stocks and 36 FTSE 250 shares that have grown the dividend payment consecutively for at least the past decade. From this pool, I can identify some good options.
Within the FTSE 250, there are some great investment trusts that have a focus around income generation. Two examples are the Murray Income Trust (4.15% dividend yield) and the City of London Investment Trust (4.74%).
Both have over two decades worth of consecutive annual dividend growth. The trusts mainly focus on investing in companies that are listed on the LSE.
In the FTSE 100, I like National Grid (4.96%) and Unilever (3.66%). Again, both have well over a decade of payment history. It’s no surprise that both stocks are well-known, established companies with a history of performing well.
Income today and tomorrow
I can never say for certain that a stock will continue to pay me income for the rest of my working life. But if I’d invested in the four above stocks a decade ago, I wouldn’t be sitting here disappointed today. That’s why I’m considering putting some of my money in each stock, to help me enjoy future potential dividends.
