If you are lucky enough to have a lump sum to invest into the stock market then there are a number of options to choose from.
But perhaps the first question you need to ask yourself is “why am I investing in the stock market”?
You could be investing for long-term capital growth, you could be investing to generate income or you could be doing a little of both.
In this article we will concentrate on investing for income.
With interest rates at all-time lows, putting your £10,000 in the bank is likely to yield less than 0.5% in interest, unless you are willing to lock up your capital for a year or more – but even then you will have to search hard to find any institution paying much over 1%.
So, putting your money in the bank could generate less that £50 in interest over the year. Inflation dropped to 0.5% in August, down from 1.1% in July, so your interest income would be wiped out by inflation meaning the spending power of your £10,000 after one year is…. £10,000!
So where else can we look for a higher level of return?
A couple of weeks ago I was listening to a Motley Fool podcast and the host, David Kuo, mentioned that he liked this time of year as many of the companies he holds shares in pay dividends.
He wasn’t wrong.
It seems that every day I look at the cash element of my share dealing account and see another dividend payment has boosted the balance.
In the last 10 days I have received dividend payments from the likes of Legal & General, Prudential, RSA, Capita, BBA Aviation, Barclays and Standard Life. Today it was the turn of Admiral, BAE Systems, International Personal Finance, Weir Group and ITV.
So some of this dividend income was put back into shares today.
The Admiral Group dividend was used to buy more Admiral shares and reduce my average buying price to 1,291p too.
Markets around the world continued to decline today. But as income investing becomes a more and more dominant theme in the Amateur Investor portfolio, the daily ups and downs become less of a concern when there’s a constant stream of dividend payments hitting my dealing account.
I’m already a holder of the Lloyds Banking Group 9.25% Non-Cum Irredeemable Pref Shares (LLPC) which I purchased in two lots back in September and October 2011. At an average buying price of 70.75p, today’s price of 92.5p represents a profit of over 30%, and still the prospect of 9.25p income for every share held.
The current price (73.95p at the time of writing) represents a yield of over 8.75%.
My LLPC holding is currently yielding 13.07% if you use the buying price of 70.75p, or 10% if you use the current price of 92.5p – so LLPE isn’t quite as attractive on the face of it, but 8.75% isn’t too shabby all the same!
I must admit to not really weighing up the pros and cons of LLPE v LLPC, but unless I’m missing something then LLPC’s yield of 10% is better than LLPE’s 8.75%. If I am missing something perhaps some of our readers could let us know what they think.
And rather than repeating what the DIY Income Investor has already said on the subject, why not read his (assuming he is a he and not a she) article, and take some time to have a look through his excellent blog while you are there.
This is the time of year when the financial magazines (Investors Chronicle, Shares etc.), brokers, newspapers and share tipsters suggest what shares we should all be buying for 2012.
You can trawl through the various newspapers, magazines and websites to find these 2012 share tips, or you can keep an eye on the 2012 share tips section of the ShareTips365 website. It’s being updated regularly as these 2012 share tips are announced.