There are hundreds of companies in the stock market that pay a dividend in some form. Choosing the right ones is where an investor’s skill comes into play.
Sometimes, an investor might want to target high-yielding options and build a second income that way. So if they included the dozen stocks with the highest yields, here’s what the numbers could look like.
Starting from the ground up
I’ll use the FTSE 250 as a filter for the highest options. At the moment, the top stock is the SDCL Energy Efficiency Income Trust, with a yield of 13.02%. The last share to make the cut is the Diversified Energy Company, with a yield of 8.99%
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The average dividend yield would be 10.69% if an investor bought the full dozen. This is very impressive. Initially, some might wonder what’s the point in buying all the companies instead of just buying the SDCL trust and getting an enhanced yield. The issue here is that it’s not diversified. In owning one stock, the yield’s higher but what if the company cuts the dividend? Then the average yield falls to… 0%.
However, if an investor holds the 12 and SDCL cuts the income payments, the impact’s still there but nowhere near as large. In fact, the average yield falls to 9.6% in this case. So the benefits of owning a balanced portfolio can’t be underestimated, especially when it comes to dividend income.
Assuming that an investor initially puts £250 in each stock and then adds an extra £50 a month in each share, the income will pick up over time. After a decade, this could pay out £1,115 a month in passive income, even without additional money being put in beyond this. Of course, there’s no guarantee the average yield of 10.69% could be maintained in years to come. In reality, the yield could be higher or lower.
An idea to put in the mix
Whether an investor is thinking of pursuing this exact strategy or not, one FTSE 250 share that I think is worthy of consideration is Renewables Infrastructure Group (LSE:TRIG). The stock’s down 27% over the last year, with a dividend yield of 10.35%.
It owns and operates a portfolio of renewable energy assets across Europe, including wind farms, solar power plants, and more. It makes money from selling the energy to end users, getting government subsidies and making capital gains from asset sales over time.
One reason why the stock’s dropped over the last year is due to interest rates in the UK staying higher for longer. As some of the large projects are funded by debt, it makes it more expensive for the group to refinance existing loans or take on new funding at cheaper rates. This is a risk going forward.
Given its operations and steady cash flow, it seems like a stable dividend payer for the future.
