Dividend shares are one the best methods to quickly establish a passive income stream. Companies generating stable cash flows often reward shareholders with regular payouts on a quarterly or half-yearly basis. As such, investing money today could start delivering results within a few months at most.
Of course, a dividend is only as good as the quality of a firm’s underlying earnings. If profits and cash flow are unsustainable, yields ultimately end up being meaningless. And the income stream generated from a portfolio can quickly dry up. So, it’s critical to find and invest in only the best enterprises around – a task that’s far easier said than done.
But if I had £2,500 to spare today and dividends were my objective, my first move would be to invest £500 each into my current top five positions of my income portfolio. Let’s take a look.
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5-stock dividend growth basket
High yields are often the first thing income investors search for. Yet in my experience, that’s a critical mistake. There’s no denying that owning generous income stocks can be lucrative. But, in the long run, these seldom generate the biggest returns or income streams. Instead, that award goes to the firms capable of systematically expanding shareholder payouts for years or even decades.
So, that’s the theme of my personal income portfolio and of these five businesses.
| Company Name | Current Yield | Years of Dividend Growth | Average Dividend Growth Rate |
| Games Workshop | 4.37% | 2 | 22.1% |
| Howden Joinery Group | 2.30% | 4 | 12.6% |
| Londonmetric Property | 4.82% | 8 | 4.0% |
| Safestore Holdings (LSE:SAFE) | 3.37% | 14 | 13.2% |
| Greencoat UK Wind | 7.49% | 9 | 8.7% |
Combined, these dividend shares generate an average yield of 4.5%. Based on a £2,500 total investment that’s roughly equivalent to £113 per year.
Considering the FTSE 100 has historically provided a dividend payout of close to 4%, this doesn’t seem like the most lucrative portfolio. But the critical thing to remember is that yields can change. When invested in the right business, they tend to increase over time as companies bolster shareholder rewards. And that’s the trend my income portfolio is designed to capture.
A closer look at the businesses
While there is some overlap, each company operates in its own unique segment, providing some welcome diversification. However, one thing these firms have in common is an impressive track record of dividends.
Games Workshop may only have two years of consecutive growth under its belt, but the firm has been paying a lumpy but upward-trending dividend since 2015. Howdens has been on a roll since 2011, excluding the hiccup created by the 2020 pandemic. Meanwhile, Safestore is putting most of the London Stock Exchange to shame with an unbroken winning streak nearing its 15th year.
Of course, just because performance has been solid in the past doesn’t mean the future promises to be the same. Let’s take Safestore as an example. It’s been on a stellar roll, but since inflation started creeping into the economy, the self-storage firm has come under pressure.
In early 2022, occupancy stood at a solid 82.1%. Today, it’s down to 77.3% as both businesses and consumers look to reduce costs. This could be a temporary speed bump along its journey, and the company appears to have the necessary financial resources to weather the ongoing unfavourable operating conditions. However, should the economy continue to suffer, occupancy will likely follow, potentially reaching a point where dividends become compromised.
The other businesses also have their fair share of challenges and threats to contend with. But overall, each appears to be managing them well while maintaining a robust competitive moat. That’s why they’re my biggest income portfolio positions today.
