The majority of my holdings are dividend shares. There are plenty of ways to generate some extra cash outside of work. For me, I plan to own companies that provide meaty yields.
I’ve been doing this for some time now. And I intend to keep the same plan going forward. With the dividends I receive, I reinvest them. This means over time my nest egg will grow quicker.
I’ve been perusing the FTSE 100 for my next buys, and I think I’ve found them. I’d buy these two without any hesitation.
Insurance stalwart
While I like to keep my portfolio diversified, Footsie powerhouse Legal & General (LSE: LGEN) makes up a good chunk of my holdings. I saw an opportunity to buy the stock last year. Since then, I’ve been adding to my position. As I write, I’m up 11.7%.
There are a few key reasons I’m a fan of the stock. But let’s start with the most important. That’s its 8% yield. Only five companies on the Footsie offer a better payout than that. What’s more, its dividend is covered nearly two times by earnings.
While I’m a fan of dividend shares, I’m wary that receiving a payment is not always guaranteed. However, Legal & General places a large emphasis on returning value to its loyal shareholders, which is something I like to see. As part of a four-year plan set to end this year, it’s on track to return up to £6bn in dividends.
Aside from that, what I like about the business is its strong brand recognition. Granted, its assets under management have wavered in recent times. As investors look to keep money nearby for a rainy day, I’d expect this to continue. But I invest for the years and decades to come. Legal & General is an industry stalwart that provides essential services. I fully expect it to bounce back when the economic outlook strengthens.
Tobacco giant
I mentioned only a handful of companies offer a higher yield than Legal & General. One of them is the next stock on my buy list, British American Tobacco (LSE: BATS).
It offers a yield of 9.9%, which is only topped by two companies. It also looks dirt cheap, with a price-to-earnings ratio of just 5.9. That means it’s trading at lows last seen in 2011.
Of course, there are risks when investing in British American Tobacco. It operates in an industry that’s falling in popularity. Governments around the world have been pushing for a ‘smoke-free’ society.
However, I’m still bullish on the long-term outlook for the firm. Firstly, the tobacco industry is still huge, and I’d imagine it will remain this way for the foreseeable future. The business also has a loyal customer base with some premium names under its umbrella.
Secondly, the firm has been diversifying its revenue streams via its ‘alternative’ nicotine products. It plans to generate half of its revenues from these products by 2035. It’s on track to break even in its New Categories division two years ahead of schedule, highlighting it’s making good progress.
My move
I’m already a shareholder in both companies. But I’m keen to increase my exposure. If I had the spare cash, I’d be rushing to buy both.
