I’d like to double my money in the next 10 years. There are a number of approaches I could take to investing in UK shares with this goal. One would be to select a share whose share price I expected to grow. This is what is often called ‘growth investing’. Another way would be to select a share with a high income. Often this is called ‘income investing’.
For the best chances of doubling my money with UK shares, I’d usually look at a growth share. However, the performance of growth shares can be very uneven. Unproven technologies or new markets can be rewarding – but they can also be challenging. I’ve been hunting for an income share I think can double my money over the next decade.
These UK shares yield 10%
Imperial Brands (LSE:IMB) has a yield that currently hovers around 10%. That means that for every £100 I put in the shares today, I expect to receive £10 in dividends each year. Even if Imperial doesn’t raise its dividend, and even if I don’t reinvest the dividends, that means that after 10 years I expect to have received my investment back in dividends – and still have the shares.
This expectation does depend on the dividend being sustained. Companies can cut or stop paying dividends at any time. Last year, for example, Imperial cut its dividend by a third.
Assuming the dividends are sustained, it could take less than 10 years to double my money if I reinvested them. That’s thanks to the power of compounding. Let’s say I put the first year’s dividends into shares. If they continued to trade at the current price, that would mean I would hold £1,100 of shares after a year. So in the second year, my dividend payment at 10% would be £110, not £100. In that way, I would expect to double my money in less than a decade.
However, that does depend on what the future share price is. If the share price goes up, then when I buy more in the future, they would likely be yielding less than 10%. On the positive side, though, my initial investment would benefit from this share price appreciation.
The company’s main focus is selling cigarettes. While that has been a lucrative business for decades, cigarette use is falling in many developed markets. That could affect the company’s future ability to pay dividends and its share price.
Uncertain growth prospects
Why is Imperial yielding 10%? Tobacco shares often have high yields, but the yield here is higher than for fellow UK share British American Tobacco, for example. I think it partly reflects City concern that the company will be unable to perform well in the future.
That could affect dividends. It could also weigh negatively on the share price. To double my money in 10 years with a 10% yield, I would not only want the dividend to be sustained. I would also need the share price to stay flat or increase. If the share price falls a lot, that would affect my overall return.
So while I am confident Imperial can profit from cigarettes for decades to come, there are some analysts that are not so confident. However, I hope that by investing in Imperial I can double my money in a decade. That’s why I have made the move and put money into Imperial shares.
christopherruane owns shares of British American Tobacco and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.