I have been looking for dividend shares to buy for my portfolio to help increase my income in the low-interest-rate environment.
I think there are plenty of opportunities on the market at the moment for me to capitalise on. Here are five companies yielding 5% I would buy for my portfolio today.
Dividend shares to buy
The first two companies I would buy are in entirely different sectors. The Hipgnosis Songs Fund Limited acquires and manages music rights. Target Healthcare Reit acquires and manages healthcare properties.
Both stocks offered dividend yields of 5.5%, with the distributions backed by income from song royalties and rental property. These are both relatively defensive income streams. Contracts tend to be guaranteed for multi-year periods, ensuring a set income level.
Of course, there are some risks of owning these two investments. The most obvious one is debt. Both companies borrow a lot of money to invest. And if interest rates increase substantially, this could increase their interest costs. They may have to reduce distributions to investors as a result.
Renewable income
Moving away from these sectors, I would also acquire SSE and Greencoat UK Wind for my portfolio of dividend shares. These companies support dividend yields of 5% and are both active in the rapidly growing renewable energy sector.
SSE is planning to reduce its dividend in the near future to increase the amount of money available to invest in its operations. Therefore, I expect the dividend yield to drop below 5% in the near term. However, I am willing to accept this trade-off for the growth prospects.
As the renewable energy sector expands, I think both organisations have tremendous potential, which could lead to dividend growth further down the line.
Some challenges these companies could face in the near term include higher interest rates, which would lead to higher debt interest costs. They could also face challenges from competitors, who may be willing to outbid them for assets.
Transformation in progress
The final company I would buy for my portfolio of dividend shares is the insurance group Aviva. This corporation is currently in the middle of a transition. It has been selling non-core overseas businesses and reinvesting the proceeds in its UK operations. Management has also laid out plans to return more than £5bn to shareholders.
I think the group’s decision to concentrate on its core business is sensible. It should also help support the dividend. The stock currently supports a yield of 6.6%. That is excluding any special dividends or cash rewards that may come from asset sales.
The one red flag that appears with this company is regulation. As a financial services business, the corporation is closely regulated. Regulators could ask it to reduce its dividend if they believe it is paying out too much. This is probably the most considerable risk to the group’s payout at present.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
