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Income Investing for 2018: Which Sectors Should You Be Looking At?

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The larger part of most ISA and SIPP investors’ portfolio is generally income stocks. Income stocks are those that have a greater focus on dividend returns rather than capital growth. Income stocks tend to be larger, more stable companies with less volatility up or down in their share price than ‘growth’ and ‘value’ stocks. These dividends being reinvested back into ISA and SIPPs held with online stock brokers is one of the most powerful influences in growing the value of a portfolio over the long term.

While some industry sectors are particularly well-known for income rather than value growth, such as utilities, income stocks can theoretically belong to any sector. Companies which pay dividends are simply those that have reached a level of maturity which means that they do not need to reinvest all of their profits back into consolidating and growing revenues and market share. There’s enough cash surplus for a chunk of it to be distributed among shareholders. The Telegraph newspaper recently took a look at which sectors look like providing the richest pickings when it comes to income stocks over the course of 2018. So where should those investing online be looking most closely for portfolio additions?

Mining is the first sector tipped. Plunging commodity prices in 2015 wreaked havoc among mining companies, who at the time were often highly leveraged. Since then spending has been slashed and a far greater focus put on income streams. Commodity prices have also come back to add a shine to leaner structures and put miners in a strong position to up dividends. As long as Chinese appetite for commodities holds up and miners don’t go back to their old habits of profligate spending, double digit growth in dividends paid out by the big boys such as Rio Tinto, BHP Billiton and Glencore is tipped for 2018 by many analysts.

Financials also look like going from strength to strength after a period in the doldrums. Interest rate hikes are expected to boost income and they have been streamlined significantly since the financial crisis. However, there are still likely to be fines meted out by US regulators this year, with Barclays and RBS in the firing line. Reserves having to be increased again at the demand of regulators before dividends can be paid mean strong dividend growth may not be across the board this year.

Sue Noffke, manager of the Schroder Income Growth trust tips Lloyds and HSBC as the two best prospects for big dividend hikes.

Life insurers are also tipped by Noffke, as most of them have comfortably dealt with the new capital requirements set for them in 2016. Legal & General and Aviva are the two she thinks most likely to significantly increase dividends this year.

Risk Warning:

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Paul

The author Paul