‘Do you know the only thing that gives me pleasure? It's to see my dividends coming in.

John D. Rockefeller

1. If You Take A Risk There Should Be Some Reward

Dividends are payments made to shareholders by a business usually in the form of a cash payment based on the volume of shares owned. Many relatively low risk businesses pay a dividend yield (the amount that is paid relative to the share price) that is far greater than any ISA or savings account you are likely to find.

In times of austerity, it makes sense to get your money working harder. Investing in high yield shares that pay a good income for your investment could be one way of achieving your financial goals.

2. What Is A High Yield Share?

There is no standard definition of a ‘high yield’ share, but any investment paying over 5%, and especially over 6% could be broadly deemed to be relatively high yield. The dividend yield is calculated by simply dividing the dividend payment by the share price and then expressing it as a percentage.

An example for simplicity:

If a share costs £1 and the dividend payment is 10 pence, then the dividend yield is calculated as 10p/100px100 = 10%.

You are unlikely to find many investments paying a dividend yield of 10% or more, and if you do you should exercise caution since it may not be sustainable. Dividend yields greater than 7% are rare and may be due to unusual circumstances. As always, do your research and be satisfied that you understand the reasons behind the share price, and the dividend yield.

3. Targeting High Yield Shares

You can use a facility such as an online share dealing screener facility to target shares that pay a specified level of dividend, as well as other specific criteria you wish to apply. Some great companies like Coca Cola have paid dividend payments to shareholders since around 1920, without interruption.

Companies such as Vodafone, GlaxoSmithKline and Royal Dutch Shell currently pay over a 5% dividend yield on your investment (can be higher depending on the price you pay for the share of course). Far more than most current savings accounts.

4.Diversify For A Margin of Safety On Your Income.

It may be a good idea to consider looking for high yield shares outside of the UK, and through any online share dealing service it is usually easy to target companies based in the USA or mainland Europe and beyond.

What you choose to invest in, and what level of dividend yield you choose to target is a matter of personal judgement, but aiming for great companies with a consistent history of paying a good dividend is one way of beating the interest rates offered to you on the high street.

‘You can be young without money but you can't be old without it.’

About the Author

Clive Andrews

Clive Andrews is a journalist in the financial sector, always looking for new ventures.