Dividend stocks
Dividend-paying stocks are another common component of low risk investing, popular for their regular income, but also in many cases capital appreciation. These stocks tend to be well-established blue chip companies with stable cash flows and strong balance sheets, which helps to sustain consistent dividend payments even during economic downturns.
Some of the most popular dividend stocks reside in the FTSE 100, including Legal & General, British American Tobacco and National Grid. The key factor to consider is whether the company behind the stock offers a product or service with inelastic demand — or in other words, whether it will be in demand regardless of economic conditions. Insurance, tobacco and electricity arguably meet this definition, and these companies have dividend histories spanning decades or more.
For investors seeking dividend income within a diversified portfolio, common ETFs include the Vanguard Dividend Appreciation ETF, which invests in companies globally that have a proven track record of increasing dividends year over year, or the iShares UK Dividend UCITS ETF, which invests in the 50 highest-yielding stocks within the FTSE 350.
Investing in dividend stocks can help to increase income streams and offer some protection against inflation as dividend payers tend to be defensive by nature. However, it’s important to remember that dividends are not guaranteed and stock prices can fluctuate, so combining these stocks with other low-risk assets can create a more balanced portfolio.