£5,000 put into the FTSE 100’s top 3 dividend shares today could earn this much in 5 years…

Placing cash into a couple of high-yield blue-chip dividend shares can generally be a profitable method to producing further revenue with out working to earn it.

However the method can have pitfalls too. Dividends might be lower, for instance – and capital values may fall. In any case, a excessive yield can generally point out considerations about whether or not an organization will lower its dividend in future. That may weigh on the share value – although some buyers do very effectively by shopping for cut price shares that in reality preserve their payouts.

(*5*)Excessive hitters in the top-tier index

At the second, the three highest yielding dividend shares in the FTSE 100 index are Authorized & Common (LSE: LGEN), Phoenix Group and Mondi.

They yield 8.0%, 7.3% and 6.8%, respectively.

So somebody who invested £5k evenly throughout the trio should be incomes a yield of seven.4%. That ought to translate into round £369 of dividends per yr.

Progress potential

If the corporations preserve their payouts, over 5 years that may add as much as some £1,845 of passive revenue.

However what in the event that they develop them?

Mondi has been holding its dividend flat. Weak pricing in some elements of the paper market has hit income. So I count on the dividend could not develop in the subsequent a number of years.

Nonetheless, the long-term demand outlook for paper and packaging ought to be vital. Mondi has deep manufacturing capabilities throughout many markets, in addition to a number of present buyer relationships.

In contrast, each Phoenix and Authorized & Common intention to develop their dividend per share yearly – and have completed that in latest years. Even when they each handle simply 2% per yr progress (in line with Authorized & Common’s goal), that could add one other £50 or so of dividends over the coming 5 years. That might imply the £5k invested today should earn just below £1,900 in dividends throughout that interval.

Managing the dangers

Mondi’s difficult paper market isn’t the solely threat right here, although.

Phoenix and Authorized & Common are each in monetary providers. They each give attention to the retirement finish of the market.

Concentrating two-thirds of the funding in the identical financial space is an pointless threat, I reckon, however an investor who already owns different shares would possibly be capable of do this whereas nonetheless staying diversified.

A threat I see is a monetary market downturn hitting portfolio valuations. That could lead policyholders to tug funds from Phoenix and Authorized & Common, hurting income.

Authorized & Common faces different dangers. It plans to promote a big US enterprise. That may generate sizeable money that may assist fund dividends and share buybacks.

Nonetheless, it’s also prone to take away a bit of present revenues. That could harm general profitability down the line.

Critical revenue era potential

However Authorized & Common has strengths too. Like Phoenix, it has a confirmed enterprise mannequin and a big long-term consumer base.

Once more like Phoenix – the proprietor of Commonplace Life – Authorized & Common has a long-established, well-known shopper model that may assist it win and retain enterprise.

Over time, I see each — and Mondi — as dividend shares buyers ought to contemplate.