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On top of it, income shares are ridiculous. Park a little extra money in a company with this type of stock and get a percentage of your money back two to four times a year. Anyone looking to build an income stream, even just a few hundred quid or so, may wonder why they should look anywhere else.
We can even calculate how much the income will cost us ahead of time. It’s not an exact science of course. Dividends change from year to year, sometimes because of the company’s performance and sometimes because of broader factors unrelated to the company itself. But as long as we’re investing long enough for it to be easy to depreciate, the ballpark rate isn’t too expensive to operate.
With a view
Let’s start with £300 of income every month. In a year that will be £3,600 which we hope our salary shares will pay us in dividends. Achieving that from some of the highest paying in FTSE 100 would require an upfront payment of £45,000 assuming a dividend yield of 8%. That’s more than you’d get from a savings or buy-to-let account and we can get all the money tax-free by making smart use of a Stocks and Shares ISA.
Before we go any further, let’s remember that theory is very different from practice. In this case, very few companies pay such high yields and those that do not tend to contribute much in the way of share price growth. Maybe they are in a shrinking industry. Perhaps the pile of debt is too difficult to calculate. Whatever the problem, it’s important to research your high-paying stocks before you get stuck.
One such stock British American cigars (LSE: BATS). I doubt that many people expect the maker of Dunhill again Lucky Hit being a fast growing company but the problems are perhaps even more complicated when you look under the bonnet.
Will it grow?
Recent growth has come from raising the prices of the company’s cigarette packs and there isn’t much room for that left. Taxes on them are very high and no one will complain much if they keep going up.
Consumption in key markets has been declining for decades and the potential solution to that problem, non-flammable products like vapes, make up a small portion of sales. The threat of the law will also appear on these products.
On the plus side British American pays a solid dividend that continues to grow. The yield now sits at 8.71%, somewhat above our estimate above, and is well covered by the company’s earnings which means little threat to future payouts.
Future income will also be supported by global tobacco consumption, which is expected to increase until 2030, mainly due to tobacco. “status symbol” result in middle-income countries.
For anyone looking to invest in income shares to earn £300 a month or otherwise, I believe this is a stock to consider.
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