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Some dividend shares just look like foundational choices to me. They’re some of the ones I think could be a firm basis for a long-term Stocks and Shares ISA. But not just any old high yield will do.
I’m thinking of companies that keep on generating cash year after year, are near the top of their sectors and unlikely to be knocked off their perches.
BP (LSE: BP.) is one, with a forecast dividend yield of 6.5%. The yield is boosted by a bit of share price weakness in the past couple of years.
End of an era?
I expect some people might think I’ve taken leave of my senses, as fossil fuel use is apparently nearing its end. Well, yes that’s got to be the biggest long-term risk.
But people have been worrying about it for years, yet the dividends just keep on coming. I think there could be at least another couple of decades of BP dividends. And that’s enough to make it a definite ISA consideration for me.
BP’s on-off renewable energy strategy has to be holding the share price back a bit. We’re looking at a 19% fall in the past 12 months. But it does help keep the dividend yield up. And forecasts suggest the annual payments should be decently covered by earnings.
The company is also making new deals for oil production, with new projects in the Caspian Sea and in Iraq. I reckon those who’ve written off BP as a long-term dividend stock might have made a mistake. Especially as analysts predict a 28% rise in earnings per share between 2025 and 2027.
Bank essential
No income portfolio would be complete for me without a bank. Finance is as essential as fuel, food and water in today’s world. And right now, I find the 5.7% forward dividend yield at HSBC Holdings (LSE: HSBA) hard to ignore.
The HSBC share price has risen nicely over the past five years. But we’ve seen profits climbing too, enough to keep the forward price-to-earnings (P/E) ratio down to 9.5. And as low as eight in another two years, based on forecasts to 2027.
Double edge
What is surely HSBC’s biggest risk is something I also see as one of the key attractions. That’s its global geographic diversification, with a big focus on China and Asia in general.
Political tension? Trade Wars? They’re real risks that could resurface regularly. But the market has a long-term tendency to buck such issues. I think investors with a horizon of 10 or 20 years or more could be making a mistake if they base investment decisions on what might happen in the next few months.
Is the outlook reliable? If forecasts are accurate, we should see progressive dividends covered around 1.9 times by earnings in the next few years. I think that should help boost confidence for investors who are looking past the current uncertain economic and political outlook.
