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Retirement’s edging a little bit nearer by the day and, in preparation, I’m nudging my portfolio away from progress and in the direction of passive revenue.
I plan to generate that revenue by investing in a selection high-quality dividend-paying blue-chip shares. These are firms with sturdy 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 undecided I’ve acquired the steadiness fairly proper. I’ve a selection of FTSE 100 dividend shares, together with Lloyds Banking Group, Authorized & Basic Group, Unilever, M&G, BP, Taylor Wimpey and GSK. For my part, these firms provide stable yields and potential long-term share value progress as properly.
But I’m over-exposed to the monetary sector, with Lloyds, Authorized & Basic, and M&G all falling into this class. Oh, I additionally maintain insurer Phoenix Group Holdings.
I’ve discovered FTSE 100 financials troublesome to withstand, given their ultra-high yields and low valuations, however I might need overdone it. To scale back danger and improve stability, I would like a bit extra diversification throughout completely different industries.
With that in thoughts, I not too long ago purchased oil and fuel large BP (LSE: BP). Its shares appeared good worth, buying and selling at lower than six occasions 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 value has struggled as power costs retreat. It’s down 8% over one 12 months 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 decide up, nevertheless it faces a world of uncertainty proper now. What affect will Donald Trump’s tariffs have? How will UK windfall taxes and Labour power secretary Ed Miliband’s stance in the direction of fossil fuels have an effect on the sector?
The BP share value 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 fuel begins flowing again into Europe, power costs might retreat once more. So might BP earnings.
My greatest fear is that BP can’t appear to resolve methods to deal with 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 an in depth 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 a selection 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.
