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UK Income Factory

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I’ll give you an overview of what this pie is really designed to do, how I built it and then we can go through the stocks in the holdings.

They may well have been adjusted slightly if you are watching in the future!

Purpose of this Pie

I wanted to make a pie that would satisfy the never-ending requests of a dividend pie that was denominated in Great British Pounds for all the true patriots among you.

So that was that is the first criterion – all the stocks needed to be listed in the UK and in GBP.

Next is that, it will be an income portfolio. That’s what I do, generally speaking. I think it’s incredibly unlikely that I will ever make a growth pie as I don’t pick stocks for growth. If you are unclear about my own portfolio strategy, then I recommend you watch a video I made called the metronome portfolio.

Now this income needs to be at a relatively high level, as you can get 5.2% on cash with Trading 212 right now as I am making this video so I need to at least hit that. Of course, there is a difference between investing in equities and dividend stocks and interest on cash but it’s a consideration.

I am using IUKD as a general benchmark and the yield for that is about 5.4% at the time of writing. So I would like to hit something similar to that so that people feel like it’s a logical switch to make (bearing in mind IUKD has a long-term trend of negative share price growth and ongoing fee of 0.4%).

So basically, the yield should ideally be above 5%.

On top of that, I want a positive 5-year AAR or 5-year annual average return.

It’s all well and good getting an income from a high dividend yield but it kind of defeats the object if your investment is essentially just being returned to you from your invested capital.

Then I don’t want to take excessive risks with this pie, especially as its made with a view for people who have been looking for it to copy it so I also want it to have low beta, low volatility and the stocks to have relatively high market caps – so a lot of the companies on the holdings list you will recognise as being from the FTSE 100.

So that’s pretty much the criteria:

 A relatively high-yielding portfolio with a positive annual return made up of larger cap UK-listed stocks that should be relatively stable.

Let’s see the breakdown.

First a heads up, the categories I am using here might look a little unusual, they are the categories I started using in this video I made on stock market categorisation.

So let’s see the breakdown of the categories in the pie:

So the biggest category is in Banks and financials which is pretty much expected for a UK-based pie, a lot of the UK economy is based on exactly that. Next up is Energy and commodities, including oil and energy giants and big miners.

So far this is probably not surprising.

Then we go to Consumer Necessity, which includes all those day-to-day usage-type products, Unilever heading up the main holding in this section.

This was also my first big dilemma – whether to include Tobacco stocks or not.

Obviously, tobacco stocks would pump up the yield to hit my desired target area but it might be a no-go for many people.

I ended up not including tobacco here but if you wanted to add it to boost the yield you could easily swap out some of the stocks in this section here.

After that, it is utilities and infrastructure, a fairly straightforward section and is one of, if not the best natural, dividend payer section. Real Estate was harder to fill than I thought, I much prefer Real estate investment trusts outside the UK generally speaking.

Components and production which is my twist on Industrials which has been extended in its remit takes up 10% but this one might increase over time… we will see.

Then we have 4% in Pharmaceuticals and Medical Research and 4% in Innovative Tech, the two stocks in this section don’t strictly fit the innovative tech description but there was nowhere else to put them so they can stay they for now.

So that is the composition.

Stock Holdings

I have made this spreadsheet here so that you can see the current yield of the pie, the composition and all the holdings and it’s updated as soon as I make a change.

You can also get a rough indication of when your income will be paid out to you on the first tab with the bar chart.

The Portfolio

Here is what the portfolio looks like on the Trading 212 app:

You can see the portfolio on Trading 212 here

Final Thoughts

The minimum investment is £50 which makes reinvesting easier and should be fine to start with a £50 investment which is a significantly lower starting point than Almost Daily Dividends.

Also, just to note – making this pie doesn’t mean it’s a recommendation to buy any of these stocks on an individual basis and it should be looked at as a portfolio on aggregate.

Due to the way pies work, it isn’t a comment on the current value of any of these particular picks and it is supposed to be held long-term.

Generally speaking, holding equities in this way should be done with at least 5 years in mind.

And finally, before I finish this post I just want to say one thing.

Although there are advantages of investing only in UK stocks such as lack of currency fluctuations no FX fee and no withholding tax I do hope you will at least consider investing outside of the UK too.

Over the past few years, the US has generally outperformed the UK by a wide margin as shown in the graph below and restricting yourself to just one market may hurt your returns if you don’t diversify. That doesn’t mean the UK can’t come back to overtake the US but it also means that it might stay lagging behind – who knows?

Just one more thing to think about!