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Investing in equity stocks can be a gateway to a steady stream of income, in my opinion.
Here's how I would do it if I were starting over today.
step by step
First, I will open a Stocks and Dividends ISA as my preferred investment vehicle. This makes no sense to me because of the minimal tax I will pay on dividends received in this mode, and the annual allowance of £20k.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
The next step is to choose the best dividend stock. Factors I look for include industry position, performance and payment history, and the balance sheet, which can tell me about the financial health of the business, as well as future prospects. In addition, I can diversify my pot of stocks to reduce risk.
I am wary of dangers
Allocations are never confirmed, which is a concern. Also, each stock I buy comes with its own risks that can hurt performance and payouts.
Finally, I look for a specific return rate to target a specific pot to draw down from. If I earn less, I have less money left to draw and enjoy.
Staggering numbers
Let's say I had £11k to start my journey. I could also use £200 a month from my own money to top this up.
My plan is to invest for 25 years, and I aim for an 8% return. In the end I will be left with £270,947. If I put down 6% a year, and divide that amount into weekly installments, I'll be left with £312 a week.
One stock I would buy in this process
I would say work TP ICAP (LSE: TCAP) shares a heartbeat to help me achieve my goals.
The business of sales, data, and analytics has an extensive global reach. It also serves some of the world's largest sectors, including energy, financial services, and commodities.
From a basic perspective, there's a lot to like. A dividend yield of over 6% is very attractive. Also, the shares look good value for money to me at a price-to-earnings ratio of close to six.
Moving forward, recent performance has been positive, in the form of the half-yearly report released last month. The update points to the group's revenue and EBITDA rising compared to the same period last year. And, forecasts show that this could increase significantly in the coming years. However, I understand that predictions do not always come true.
With one eye on the future, TP ICAP's data analytics arm could be the key to future hot growth, and sustainable returns. With the existing market presence, and the potential implications of artificial intelligence (AI) to improve its products, I will be keeping a close eye on this space.
However, from a bearish perspective, the company's retail business may soon become obsolete. This is due to the natural change in technology and work processes. Doing business over the phone is becoming a thing of the past. Benefits and returns can be affected here.
Overall TP ICAP looks like it can give me good opportunities to pay regularly to help me generate additional income.
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