Image source: Getty Images
The gold price has climbed above $1,900 an ounce after a year of doing very little, but I’m not rushing to buy, preferring to build my wealth on top UK dividend stocks instead.
I’ve never been that into gold. Plenty of investors recommend it as a portfolio diversifier, but I have never seen the point. Yes, I know it’s a store of value and all that. I also know that it does not normally correlate with shares, and provides consolation in times of trouble.
Dividend stocks are my bag
Yet none of the arguments have convinced me. I did buy a sprinkling of gold a couple of years back, and just got bored of it sitting there, doing nothing. The precious metal has no uses, except decoration. Investor demand relies purely on sentiment, which as we saw last year, is impossible to predict. Most important from my point of view, gold does not and will never pay me any income.
It took me a few years to understand the value of dividend income, but since I got the message I’ve never looked back. I love those cash payments trickling into my portfolio, making me richer without me having to do anything. They feel much more reliable than random gold price movements, which can just as randomly go down as up. Once a dividend is paid, it’s mine to keep.
I’m at the stage where I still reinvest all my dividend income to buy more stock. So as well as getting richer today, I’m building wealth for the future. Today, for example, I got £84.56 from the Scottish Oriental Smaller Companies Trust, out of the blue. Nice.
Soon the dividends from my recent FTSE 100 stock purchases Lloyds Banking Group, Persimmon, and Rio Tinto will start rolling in. I’m looking forward to it. They will go straight back into my portfolio, to build my stake in those stocks. Which will pay me more dividends, in an ongoing virtuous circle.
By building a portfolio of mostly FTSE 100 dividend aristocrats, I don’t have to worry if the market crashes from time to time. In a strange way, I will welcome it. It means my reinvested dividends will pick up more stock, at the new lower price. Whereas if the gold price falls and stagnates, there is no such compensation.
FTSE 100 income stocks give me growth, too
Dividend stocks offer me further excitement of the shape of capital growth. Persimmon is already up 21.38% since I bought it on 13 October. Rio Tinto has jumped 19.81% since 8 November.
Another recent purchase, Rolls-Royce, isn’t a dividend stock at the moment, but I’m hoping it will soon restore its shareholder payouts. The share price is up 31.01% since my purchase on 1 November.
I bought all three because they looked undervalued on a number of metrics, including the price-to-earnings ratio. It’s early days but so far my strategy is paying off. I can’t work out gold’s real value in the same way, because it has none.
Many financial advisers recommend portfolios invest 5% of 10% in gold. I have no beef with that. I just don’t do it myself.