The secret sauce of ISA millionaires: buy high-yielding stocks

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5 days ago

I have always been a firmer believer that the easiest and safest way to become rich in the stock market is to buy established blue-chip, high-yielding stocks, then just sit back and let the power of compounding perform its magic. Unfortunately, my view tends to be in the minority.
For as long as I can remember, the simple fact is that most individuals park the majority of their savings in either Cash ISAs or in low-interest current accounts. Indeed, for most of my adult life that is exactly what I did, and boy do I now regret that stance.
Debunking myths
There are a lot of myths out there regarding investing. Don't I need to be clever to invest? Don't I need a lot of money to invest? Isn't the stock market just a casino? These are common questions many have asked me over the years. I always answer with the same statement: over the long-term, the stock market consistently delivers superior returns to cash.
Research shows that ISA millionaires predominantly invest in either individual stocks or investment trusts. Personally, I prefer picking my own stocks.
I see many advantages. Firstly, there are no fund management charges. Secondly, for stocks that provide one, I receive a dividend, and thirdly, I have complete visibility where my money is invested.
My philosophy is simple: buy and hold. Once I have done my research and hit the buy button, the only reason I will sell out is because something fundamentally alters with the business. For example, maybe a once-successful business model has lost its relevance. With high-quality businesses, with strong moats, this rarely happens.
Dividend champions
These are my top-paying dividend stocks in my Stocks and Shares ISA portfolio, each of which I have owned for more than five years. Over that time frame, some have seen their stock price move up, like HSBC, others not so, like aberdeen (LSE: ABDN).
Stock
Dividend yield
Legal & General
8.4%
aberdeen
7.1%
BP
6%
HSBC
5.6%
Aviva
5.6%
Conviction
When investing in individual stocks, the most important attribute any investor must possess is conviction. That has certainly been required with aberdeen, whose share price has fallen more than a fifth since I first bought it. But during that time my original investment thesis hasn't changed, which is why I have pound-cost averaged into the stock.
In a crowded wealth and investments industry, I maintain that aberdeen has one distinct advantage over its competitors: its ability to cater for a diverse set of clients from sovereign wealth funds, through to financial advisers and individual investors.
The business has struggled over the last few years particularly with institutional investors and high-net worth individuals because its funds have consistently underperformed benchmarks, such as the S&P 500.
But in 2021, amid a surge in popularity of web-based trading, it bought out interactive investor. That proved to be an outstanding strategic move. In the last few years, assets under management administration have soared. It now stands at £85bn, second only to Hargreaves Lansdown.
Interactive investor today accounts for nearly half of all aberdeen's profits. As the company continues its growth journey, I maintain that it will be able to support market-beating dividends well into the future.
The post The secret sauce of ISA millionaires: buy high-yielding stocks appeared first on The Motley Fool UK.
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Andrew Mackie owns shares in Legal & General, aberdeen, BP, HSBC and Aviva. The Motley Fool UK has recommended HSBC Holdings. 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.
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