Every month, we ask our freelance writers to share their top ideas for dividend stocks to buy with you — here’s what they said for February!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
Aviva
What it does: Aviva is the UK’s leading insurance, wealth and retirement business.
By G A Chester. Aviva (LSE: AV) is my top pick for income right now. A recent dividend cut from sector peer Direct Line Insurance hasn’t dampened my enthusiasm.
Aviva’s dividend isn’t guaranteed, but its diversified business across multiple insurance lines, wealth and retirement is a major strength. And a third-quarter trading update, issued in November, gives me confidence in the prospects, financial targets and outlook for the group.
Management reported “continued strong trading momentum” and a capital position “well above the top-end of our target range”. It said its dividend guidance remains unchanged. As does its intention to commence additional returns of capital to shareholders, with its full-year results scheduled for 9 March.
The dividend guidance is 31p per share for the year, with an increase to 32.5p for 2023. At a share price of 440p as I’m writing, the yield is 7%, rising to 7.4%. And there’s the start of those anticipated additional capital returns on top, too…
G A Chester does not own shares in Aviva or Direct Line Insurance.
DS Smith
What it does: DS Smith is one of Europe’s largest cardboard manufacturers, playing a critical role in the ecommerce supply chain.
By Zaven Boyrazian. Ecommerce isn’t having the best of times lately. With consumer spending falling off a cliff courtesy of shaky economic conditions, the volume of online shopping has declined. And that’s arguably a big reason why the DS Smith (LSE:SMDS) share price was hit so hard in 2022.
As a reminder, the dividend stock is one of the largest cardboard manufacturers in Europe. It’s hardly the most exciting enterprise, but packaging materials play a crucial role in ecommerce.
Unsurprisingly, the company reported a 3% decrease in volume in its latest results. And yet, on the back of several price hikes, revenue and earnings are actually up – and not by a small amount. Pre-tax profits surged by 80%, leading to a 25% boost in shareholder dividends.
Pairing that with a depressed valuation, the dividend yield now stands at 4.7%. While there remains the risk of a sharper drop-off in volumes if economic conditions worsen, the long-term income potential makes it a risk worth taking, in my opinion.
Zaven Boyrazian does not own shares in DS Smith.
European Assets Trust
What it does: European Assets Trust is an investment trust focussed on small and medium-sized companies in Continental Europe
By Christopher Ruane. As an income investor, a dividend cut rarely sounds like welcome news. But that is what was announced in the first week of the year by European Assets Trust (LSE: EAT). The annual dividend fell 34% compared to last year.
However, I still see the trust as a potentially attractive income generator for my portfolio and would buy it if I had spare cash to invest.
The cut still leaves it with a juicy prospective dividend yield over 6%. It is consistent with the trust’s payout policy based on its net asset value, meaning the dividend could bounce back in future if the trust’s shareholdings perform well.
The opposite is also true, though: it could fall further. Inflation could hurt profits at some of the trust’s investments. But I like its exposure to developed economies. I also think its focus on smaller companies rather than mature giants offers growth potential.
Christopher Ruane does not own shares in European Assets Trust.
Glencore
What it does: Glencore is a commodity giant that trades and mines an array of metals and other resources.
By John Choong. Like many commodity stocks, Glencore (LSE: GLEN) shares had a volatile time in the first half of last year due to the instability surrounding China’s manufacturing activity. Nonetheless, it managed to stage a rally in the second half, and finished 2022 on a high with a gain of 45%.
Although the consensus for investors is to buy low and sell high, I’m opting to buy high with Glencore. Its shares may be trading at a five-year high, but its relatively cheap multiples and bright prospects in both the medium and long term make this a great investment for me.
Its dividend yield isn’t astounding by any means at just over 3%, but with coal prices expected to hold up strongly this year while other metals strengthen, I’ve no doubt those profits will translate into dividends and a growing share price. After all, both JP Morgan and Citi rate the dividend stock as one of their top picks for 2023.
John Choong has positions in Glencore.
IG Group
What it does: IG Group is a FTSE 250-listed global leader in online trading and investments.
By Paul Summers: Having once held the dividend stock, I’m beginning to think about rebuilding a position in IG Group (LSE: IGG) for the income it consistently throws off. The stock is forecast to yield 5.8% as I type. That’s almost double the 3% yield of the FTSE 250 as a whole.
Naturally, no dividend stream is ever truly safe. The ability of a company to keep returning cash depends on whether it can continue generating profit.
I don’t see this as being a problem for IG, particularly in the current economic environment. In contrast to most businesses, it benefits from market volatility as more traders want a slice of the action. Accordingly, dividends are forecast to be comfortably covered twice by profit in the current financial year.
This, when combined with high operating margins and a robust balance sheet, make a price tag of nine times earnings look very reasonable.
Paul Summers has no position in IG Group
Legal & General Group
What it does: Legal & General is a financial services company that specialises in insurance, investments, and retirement solutions.
By Edward Sheldon, CFA. It’s hard to ignore Legal & General’s (LSE:LGEN) dividend yield right now. For 2022, analysts expect the company to pay out 19.4p per share in dividends. That equates to a yield of around 7.5% at today’s share price.
It’s not just the headline yield that impresses me here, though. Another thing that stands out is the company’s dividend track record. Over the last decade, Legal & General has been a very reliable dividend payer. And it has increased its payout significantly over this period.
As for the valuation, this is very low at the moment. As I write this, the dividend stock’s price-to-earnings (P/E) ratio is less than eight. Given this low valuation, I think there’s potential for share price gains here too.
It’s worth noting that Legal & General shares can be volatile at times. During periods of market turbulence, they tend to fall more than the overall market. I think the key is to ignore the share price volatility and focus on the big dividends being paid out.
Edward Sheldon has no position in Legal & General Group.
Rightmove
What it does: Rightmove is a property platform. With 692,000 properties and 18,969 customers, it’s the largest in the UK.
By Stephen Wright. With a dividend yield of around 1.5%, Rightmove (LSE:RMV) is hardly an obvious choice of income stock. But there are a few things worth noting about the company’s shareholder returns.
The first is that Rightmove’s dividend has been growing significantly. Over the last decade, the dividend per share has grown by an average of 10% per year.
Another is that Rightmove returns a lot of cash to its shareholders via share buybacks. These allow shareholders to sell part of their investment without reducing their stake in the overall company.
In total – through a combination of dividends and buybacks – Rightmove returns around £239m to shareholders. At today’s prices, that’s a yield of just over 5%.
That’s why Rightmove is my best British income stock to buy for February. A rising dividend and a significant buyback programme means there’s a lot going on here from an income perspective.
Stephen Wright owns shares in Rightmove.
Rio Tinto
What it does: Rio Tinto is a global metals and mining company. It provides the world with materials such as iron ore, copper and aluminium.
By Harshil Patel. With a market capitalisation of just over £100bn, Rio Tinto (LSE:RIO) is one of the largest companies listed on the FTSE 100.
I’d describe it as a high-quality business. It offers a long-established track record and has a history of providing above-average shareholder returns.
In addition to a double-digit return on capital employed and profit margin, Rio offers a forecasted dividend yield of 6%.
And despite its shares trading near an all-time high, the shares still look cheap to me. Its P/E ratio of 10 appears to be towards the lower half of its historical range.
Looking forward, the reopening of China’s economy could provide a boost to infrastructure spending. That should result in earnings growth and potentially dividend growth, too.
Bear in mind that the mining sector is cyclical, though. A downturn in the global economy can often have the opposite effect.
Overall, though, Rio strikes me as a decent dividend stock with added potential for growth.
Harshil Patel does not own shares in Rio Tinto.
TP ICAP
What it does: TP ICAP operates across a range of financial markets, providing brokerage, data solutions, and liquidity to its trading clients.
By Roland Head. FTSE 250 financial services group TP ICAP (LSE: TCAP) boasts a 2023 forecast dividend yield of 7%. The firm has returned to growth after a difficult period and is expected to report rising profits for both 2022 and 2023.
By matching up buyers and sellers for deals that can’t be done on electronic exchanges, TP ICAP’s brokers earn tasty commissions.
Demand for these so-called interdealer broker services isn’t as high as it used to be, but the company has diversified by expanding into commodities and developing new data services for clients.
Rising interest rates and resulting volatility have generally been good for the firm. However, one concern I have is that it’s difficult for outside investors to predict how market conditions will affect performance, especially in the core brokerage business.
Even so, TP ICAP shares look affordable to me. Trading on seven times forecast earnings, I see the dividend stock as a good income buy.
Roland Head does not own shares in TP ICAP.
