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How to generate a realistic level of portfolio income

The key to building income resilience in your portfolio is diversification
How to generate a realistic level of portfolio income
  • 3 per cent looks like a sensible target for income investors
  • Higher yields could compromise growth

The pandemic dealt a double blow to income investors with both swathes of companies cutting dividends and bond yields compressing. According to Link Group, dividends (excluding specials) paid to investors by UK-listed companies fell 44 per cent last year – the lowest level since 2011. 

The good news is that dividends have been making a faster than expected recovery, with mining companies leading the charge and industrials and consumer discretionary also recovering strongly. In the second quarter of this year, UK dividends increased by over 50 per cent year on year, recovering to a level one-sixth below that of the second quarter of 2019. The dividend recovery has not been reflected by investment trusts, however, with Link reporting that UK equity income trust dividends were 9 per cent lower in the first half of 2021 than in the same period in 2020. But this discrepancy is due to a lag factor as it takes time for the cut in dividends received by the trusts to feed through to what they pay. 

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