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Retirement’s edging slightly nearer by the day and, in preparation, I’m nudging my portfolio away from development and in direction of passive revenue.
I plan to generate that revenue by investing in an expansion high-quality dividend-paying blue-chip shares. These are firms with robust steadiness sheets, dependable earnings and a historical past of rewarding shareholders.
By rigorously choosing shares with sustainable and rising dividends, I’m hoping to construct a portfolio that ought to present a gradual stream of revenue for the remainder of my life. It’s not with out challenges although.
Can these FTSE 100 shares safe my retirement?
I’m unsure I’ve obtained the steadiness fairly proper. I’ve an expansion of FTSE 100 dividend shares, together with Lloyds Banking Group, Authorized & Common Group, Unilever, M&G, BP, Taylor Wimpey and GSK. In my opinion, these firms supply stable yields and potential long-term share worth development as properly.
But I’m over-exposed to the monetary sector, with Lloyds, Authorized & Common, and M&G all falling into this class. Oh, I additionally maintain insurer Phoenix Group Holdings.
I’ve discovered FTSE 100 financials tough to withstand, given their ultra-high yields and low valuations, however I might need overdone it. To cut back threat and improve stability, I would like a bit extra diversification throughout totally different industries.
With that in thoughts, I just lately purchased oil and gasoline big BP (LSE: BP). Its shares regarded good worth, buying and selling at lower than six instances earnings. Its dividend yield of 5.36%’s additionally extremely enticing. Higher nonetheless, the board has been serving up a heap of share buybacks.
However I’ve worries. The BP share worth has struggled as power costs retreat. It’s down 8% over one yr and seven% over 5.
Whereas long-term traders will nonetheless be comfortably forward, because of these dividends, it’s a disappointing exhibiting.
BP shares have jumped 7% within the final month as power costs choose up, nevertheless it faces a world of uncertainty proper now. What impression will Donald Trump’s tariffs have? How will UK windfall taxes and Labour power secretary Ed Miliband’s stance in direction of fossil fuels have an effect on the sector?
The BP share worth isn’t my solely concern
We’re additionally ready to see what Trump will do about battle in Ukraine. If there’s a peace deal and gasoline begins flowing again into Europe, power costs might retreat once more. So might BP earnings.
My largest fear is that BP can’t appear to determine sort out the renewables transition. Can it afford these share buyback and dividends whereas it pumps cash into inexperienced power?
Whereas I’m not promoting, these uncertainties imply I’ll be maintaining a detailed eye on its efficiency earlier than growing my publicity.
BP isn’t the one FTSE 100 inventory with dangers. Each single firm I’ve talked about on this piece comes with dangers and rewards. That’s why diversification’s vital.
A few of these dangers could come via, others could not. However by investing in an expansion of high-yielding dividend shares, and permitting compounding to work its magic, I’m hopefully setting myself up for monetary safety and a rising second revenue for all times.