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Does the long-term nature of investing in a SIPP mean compounding dividends becomes even more attractive?
That depends on the strategy someone takes when it comes to investing their SIPP. For a lot of SIPP investors, though, the idea of dividends building upon dividends for years or even decades is attractive.
With that in mind, here are three high-yield shares I think an investor ought to consider for their SIPP in the coming month.
M&G
With its 7.4% dividend yield, FTSE 100 asset manager M&G (LSE: MNG) is not as lucrative as it has been at some points over the past few years.
But its yield is still over double the blue-chip index’s average.
The lower yield than before does not reflect a smaller dividend per share. In fact, M&G aims to grow its dividend per share annually – and has done that in the past few years.
So, why has the yield fallen? The simple answer is share price growth. The M&G share price has grown by 41% over the past five years.
The business model is simple but proven. With millions of clients and a strong brand, I think M&G has the right tools to keep generating substantial amounts of excess cash.
That is not guaranteed, of course, and neither is the dividend. One risk I see is that rocky financial markets could lead to investors pulling more money out of M&G funds than they put in.
Phoenix Group
Another FTSE 100 financial services company with a high yield I think investors should consider for a SIPP is Standard Life’s parent Phoenix Group (LSE: PHNX).
The company focuses on long-term savings and retirement products. With over 12m customers, it is a big operation that benefits from significant economies of scale.
Phoneix has deep expertise in specialist financial markets that it has been able to parlay into ongoing cash generation.
That helps the firm fund a generous dividend. Like M&G, the company aims to grow its dividend per share each year. That could be lucrative, as the dividend yield already stands at a juicy 7.9%.
Will Phoenix keep delivering on its dividend aspirations?
One risk I see is the property market. Phoenix’s mortgage book includes presumptions about property value. Any significant fall in the market could require revaluation, eating into Phoenix’s earnings.
Over the long run, though, I see the business model as a promising one to keep the high-dividend share delivering attractive payouts.
Pets at Home
Sometimes a share can lose its appeal for investors, even though the long-term direction of travel for its business still looks promising.
Could that be the case for Pets at Home (LSE: PETS)?
The share price has fallen 48% over the past five years.
This year has seen concerns in the City about whether the company’s chain of pet shops can keep growing sales. But the vet business has been doing well. Meanwhile, the share yields 5.9%.
This week saw Pets at Home release its interim results. Revenues fell 1% year on year. That consisted of a 2% fall in the retail business and 7% growth in the vet division.
Ongoing declines in the retail business are a risk. But the total business is sizeable with short-term growth potential in the vet division.
I see ongoing cash generation potential that could help support the dividend.
