With £1,000 to invest, I’m excited to add some dividend stocks to my portfolio. I think that there’s a real opportunity to give my investment income a significant boost in August.
Right now looks like a tricky time for buying shares. In general, prices are higher than they were at the start of July.
Despite this, there are some sectors that have been doing less well lately. And I think that I can find some bargains in these parts of the stock market.
Materials
Stocks in the basic materials sector have struggled lately. These are businesses that produce things like copper, wheat, and gold.
These stocks have been struggling because the price of the commodities they sell has been falling. The price of copper, for example, has fallen by 24% in the last 12 months.
Investors are therefore expecting weaker earnings from companies that mine materials like copper. As a result, the prices of copper stocks have been falling.
I’m looking to use this as an opportunity to add shares in Rio Tinto (LSE:RIO) to my portfolio. At current prices, the stock has a dividend yield of 9.5%.
The company has recently announced that it will halve its dividend payments next year. This isn’t surprising to me, giving the lower iron ore and copper prices.
Copper, however, is crucial to the shift towards green energy. Electrification requires substantial amounts of copper and I think that Rio Tinto stands to benefit from this.
The lower dividend should help me buy shares at a lower price. I’m therefore looking to invest half of my £1,000 into Rio Tinto shares, which I anticipate being a sustainable source of passive income.
Banks
The other sector that I’ve been looking at is financials. In particular, the threat of a recession has been weighing on bank stocks.
Banks make money by earning interest on the money that they lend out. With the possibility of a recession on the horizon, banks have been required to hold back funds.
Retaining capital instead of lending it out means that banks are unable to use part of their cash to generate income. This is likely to inhibit bank earnings.
Bank shares have been falling as a result. Shares in JPMorgan Chase (NYSE:JPM), for example, have fallen by around 30% since the start of the year.
At these prices, I’d like to add JPMorgan shares to my portfolio. The stock has a dividend yield of around 3.5%.
The risk of a recession weighing on bank earnings is very real. But I see this as a short-term headwind.
JPMorgan’s cash reserves should see it safely through a recession, should one transpire. And when it does, I think that the bank will continue to be one of the best in its class.
As a result, I’m looking at investing the other half of my available £1,000 into JPMorgan stock in August.
The post Here’s how I’d invest £1,000 into dividend stocks to generate passive income for life appeared first on The Motley Fool UK.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
