Income investors really have been put through the wringer this year. All those juicy dividend-paying companies we’ve come to rely on have been slashing their payments left, right and centre in a bid to shore up their finances. This week oil giant BP joined the ranks of blue-chip businesses slashing their dividends payments.
It can all seem a little hopeless at times. “Might as well just go and buy some of those whizzy tech stocks”, you might think – they don’t pay dividends but their shares do seem to be going up and up.
But plenty of companies, it seems, are not only keeping their dividends in tact but growing them too. A delve into some of Morningstar’s dividend-focused indices sheds a light on what seemed like a dark situation.
These indices are designed to home in on companies that have increased their payouts for at least the past five years. If you cut, you’re out. Strict rules, but these are by no means niche lists. The US version alone contains more than 400 stocks. So who are these income-paying companies that no-one’s talking about?
Nestle (NESN), purveyor of the KitKat? Still growing its dividend. Insurance giant Prudential (PRU)? Still paying. Investment behemoth JPMorgan (JPM)? You guessed it. Canadian National Railway (CNR), Tencent (00700), LVMH Moet Hennessy (MC), the list goes on and it spans the entire globe.
It’s easy to get hung up on the negativity when you’re in the middle of a global pandemic and deep dark recession, but investors should hang on to the fact that most of the scary headlines don’t actually affect their portfolios.
Investors should be researchers, opportunists and, dare I say it, optimists. Because while income investing may no longer be the easy walk in the park (or the FTSE 100) that it once was, there is income out there.
The 12 Habits of Successful Investors
At Morningstar, we like to extol the virtues of investing regularly. It gets you in good habits, it takes away the temptation to buy and sell at the wrong time, it means you benefit from the joys of compounding.
More appealing than all of that though, is the fact that regular investing can Save You Money. Now you’re paying attention, aren’t you?
If you set up regular investing plan with your fund supermarket, it means you pick a fund or stock and a set a monthly amount to invest in it automatically. It’s just like any other direct debit that might go out of your bank account: your mobile phone bill, gym membership, or that pesky Amazon Prime membership you keep meaning to cancel.
Unlike when you buy and sell shares ad hoc, when you set up a regular plan the fund supermarket pools your money with other investors, and this is when the savings start to come. Because if the fund supermarket can make one big bulk trade rather than lots of little ones, it saves money, and it passes this saving on to its customers.
That’s less money spent on trading costs, and more money straight into your investments. AND don’t forget, it also gets you in good habits, takes away the temptation to… (repeat ad infinitum).
You Decide
Have you seen the first in our new weekly series: Stock of the Week? We’re asking you to tell us which companies you want to hear more about. And your first pick was Vodafone; an excellent choice, please do feel free to give yourself a pat on the back.
Each week we’ll be putting out a poll with a selection of stocks to find out which one you want to get the lowdown on. We’ll reveal what our analysts think, whether the shares look over- or undervalued, and delve into the latest details on the company to see what's on the horizon.
You can get involved by following our Twitter account @uk_morningstar - all you have to do is click on your stock of the week, and wait for us to do the legwork.
