Over the last year I’ve been adding one FTSE 100 income stock after another to my Self-Invested Personal Pension (SIPP). Today, I feel like I’m starting to reap the rewards.
Last spring, I decided it was a brilliant time to load up on dividend paying blue-chips. First, many were incredibly cheap as investors chased red-hot US tech stocks instead, but I felt the sell-off had gone too far.
Second, many offered ultra-high yields. I calculated that when interest rates peaked and bond yields and savings rates started to fall, their dividends would look even more attractive, in relative terms.
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Chasing high dividends
With the FTSE 100 hitting all-time highs, the first of these assumptions appears to have come good. The second has been delayed, as we’re still awaiting that first interest rate cut. Yet it will come, most likely in June. More should follow.
Most of my high yielders are up nicely since I bought them, notably Lloyds Banking Group and Taylor Wimpey. There’s one exception though. Wealth manager M&G (LSE: MNG). Ironically, when I bought it, this was my favourite dividend stock of all, yielding more than 9%, as it still does today.
I invested £2k on 12 July, 8 September and again on 30 November. So that’s £6k in total. I received my first dividend in early November, an interim payment of 6.5p per share. This was based on a £4k holding (I hadn’t invested my final £2k then) and gave me £133.93.
This morning I received my second. This was based on my full holding (including my reinvested dividend). The payout was also higher at 13.2p per share. My SIPP account is now £408.27 to the good. The cash will be automatically reinvested straight back into M&G.
This won’t make me a millionaire on its own, of course. But then it’s not the only dividend I’ll get this year. My Taylor Wimpey dividend hits my SIPP tomorrow. My Lloyds dividend lands on 21 May. Legal & General Group‘s is scheduled for 6 June. And on it goes throughout the year.
High and rising yield
Although dividends are never guaranteed, with luck mine will rise over time, for two reasons. First, most companies look to increase payouts annually, if cash flows are strong enough. Second, I’ll also get dividends on the shares I bought by reinvesting earlier dividends. These small, regular, reinvested payouts will roll up nicely over the years.
After a bright start, my M&G shares have sadly retreated. I’m up just 3.56%, before dividends. Over 12 months, the stock’s up just 0.84% (against 7.67% for the FTSE 100 as a whole).
That’s partly due to the ‘higher for longer’ interest rate outlook. M&G’s full-year profits, published on 21 March, jumped an impressive 28% to £797m, smashing expectations of £625m.
I feel markets have been harsh. Or perhaps I’ve bought into a value trap. Time will tell. Yet if the yield holds I’ll double my money in around seven years, even if the M&G share price doesn’t grow at all. I’ll treat any capital growth as a bonus.
Today marks another step towards retirement. A small one, yes. But investing is all about taking small steps, over a long, long time.
