Anybody who loves top dividend stocks will struggle to resist going on a buying spree at the moment. The FTSE 100 is packed full of them.

Some of the yields on offer are astonishing. Housebuilder Persimmon currently yields 17.9%. That’s the best on the FTSE 100 but mining giant Rio Tinto isn’t that far behind, with a yield of 12.87%.

Fund manager Abrdn yields 9.37%, insurer Phoenix Group Holdings yields 9.07%, and builder Taylor Wimpey yields 9.05%. Wow.

I’m buying dividend stocks today

There are plenty more where those came from. In fact, I can hardly remember a time when yields were so high. But can I trust them?

A yield is calculated by dividing a company’s dividend by its share price. So if the dividend is 5p and the share trades at £1, the yield is 5%. This means that if the share price halves, say, to 50p, the yield doubles to 10%. 

As this basic example shows, a high yield is often the sign of a company in trouble. It signals both an opportunity, and a threat.

If stock markets are down generally and my chosen dividend stock has got caught up in the wider malaise, then I’ll see that as an opportunity. Loads of stocks fits the bill right now, thanks to this year’s global political and economic turmoil. 

But I would also work through its reports, statements, and updates, to see whether there are problems specific to that company. In particular, I would look to see whether management can afford to continue paying its dividend. The easiest way of doing this is to check dividend cover. This is calculated by dividing shareholder payouts by company earnings, but it can also be found easily online. 

Ideally, it will be covered twice or more. This figure is often lower with utilities, where earnings are typically more reliable, allowing companies to hand more of them to shareholders. A healthy level of cover is no guarantee, but it’s a promising sign that the company will be able to continue paying me passive income in future.

I would also look at other company numbers, such as the size of its net debt and of course the reliability of its free cash flows, which fund shareholder payouts. Similarly, I would prioritise firms with a lengthy track record of making dividend payments. Especially those who maintained them through thick and thin (and the pandemic, too). 

FTSE 100 offers amazing yields

Any company that increases its dividends year after year would be high on my list, as this gives me a rising passive income. While past performance is no guide to the future, it does offer reassurance.

As a general rule, I would prefer a company with a lower dividend that looks more reliable, than a higher dividend that is likely to be cut. When a dividend is cut for being unaffordable, the company’s share price tends to bleed, too.

Naturally, a host of other factors will determine whether the dividend is sustainable. A strong balance sheet, loyal customer base, unique brand, or popular products can all help secure those all-important cash flows. 

While I’m thrilled by all the top FTSE 100 dividend stocks out there right now, I’m doing some careful sums before buying them.

The post Can we really trust today’s high-yielding dividend stocks? appeared first on The Twelfth Magpie.

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Harvey Jones holds shares in Persimmon. The Motley Fool UK has no position in any of the shares mentioned. 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.

Surging inflation is continuing to cause global chaos. In the UK, official figures show that rates have now surpassed 10% and continue to spike to fresh highs. This means stagnant cash is losing value, so I’m searching for dividend stocks that can build a passive income stream to help me counter inflation.

Here are two I’m seriously considering purchasing this month.

Abrdn

The first stock I’m looking at is global investment firm Abrdn (LSE: ABDN). It’s seen over 40% wiped off its value so far this year. In the last 12 months, the Abrdn share price is down around 45%.

Despite this, I still think it could be a solid buy today.

Firstly, its main attraction is its monumental near-10% dividend yield. This isn’t inflation-beating. But it’s not far off. And therefore, this would offer me a good level of protection against rising rates.

Its latest update to shareholders wasn’t the most impressive. However, the moves the firm is making to return value to shareholders also look good to me.

There’s an initial £300m programme, including a £150m share buyback scheme.

The stock may struggle in the months ahead as investors are deterred from making investments. With the energy price cap also recently being raised, this will only magnify the issue.

However, as a source of passive income, I think Abrdn is a great buy. With a near-inflation dividend yield and the business placing an emphasis on improving this, I’d buy Abrdn shares today.

Legal & General

Another stock on my radar for this month is Legal & General (LSE: LGEN). The financial and insurance business is down around 8% over the past year. In 2022, it has plummeted by 18%.

Like Abrdn, the business has struggled as consumers have tightened their belts in the face of the rising cost of living.

However, with its fall comes a huge 9.5% dividend yield.

Legal & General is a well-known FTSE 100 business. By adding the stock to my portfolio, I’m getting a reputable brand for a beaten-down price.

It also recently posted a positive update for the first half of this year. Within the period, operating profit rose 8%, while earnings per share jumped by the same amount.

The business also had an interim dividend of 5.44p, up 5% from the year before. And to add to this, it highlighted its growing contribution toward its five-year ambitions programme. This includes a cumulative dividend ambition of potentially £5.9bn by 2024. And when searching for stocks that can create a stream of passive income for me, this is the sort of thing I want to see.

The business may face a rocky road ahead as some predict inflation could reach well over 15% come next year. And with spending already slowing, I expect to see this intensify as we head into 2023.

However, I’d still buy the stock today. As a strong brand with an impressive dividend plan, I think Legal & General would be a great addition to my portfolio in September.

The post 2 top dividend stocks to buy in September appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

It’s no secret that inflation has been wreaking havoc across markets this year. With stagnant cash depreciating, I’m on the lookout for top dividend stocks that can go some way towards hedging me against rising rates. Here are two I’m strongly considering today.

Red hot rates

Before we delve into my picks, let’s start by taking a closer look at what’s been going on so far in 2022.

In the UK, inflation continues to reach new highs and July saw it in double-digits at 10.1%. In its latest update, the Bank of England explained that rates could peak at 13% this year. And more recently, investment bank Citi made the bold prediction inflation could rise to as high as 18% next year. Or as it stated, “entering the stratosphere”.

Citi pinned its forecast largely to gas prices as it revealed the UK’s energy price cap could reach nearly £6,000 come April 2023.

Taylor Wimpey

With this, I’m looking to put my money to work. And my first pick would be homebuilder Taylor Wimpey (LSE: TW). Looking at its share price over the last 12 months isn’t a pretty read as the stock has seen 37% shaved off its price.

However, with this fall comes a meaty 8% dividend yield. This isn’t inflation-beating, but this passive income stream could certainly come in handy in the months ahead.

Despite tough economic conditions, the firm recently released a strong set of half-year results. On the back of a strong set of comparators, it managed to slightly grow its operating profit. And for its full-year outlook, it expects operating profits to be at the “top end of the current market consensus range”.

The biggest issues the company faces are rising material costs and potential supply chain issues. But with these only as short-term concerns, I’d consider buying the stock today.

Abrdn

My second pick would be global investment company Abrdn (LSE: ABDN). Like Taylor Wimpey, the stock’s price has suffered so far in 2022. Over the last year, the Abrdn share price has slid nearly 44%.

It currently offers a whopping 9.8% dividend yield, which is incredibly attractive. And on top of this, it also looks cheap with a price-to-earnings ratio of 5.4.

Despite some subpar figures being reported in its latest update, I still see plenty of positives with Abrdn.

Firstly, it recently completed the initial phase of a £300m shareholder return programme via a £150m share buyback scheme. Its interim dividend of 7.3p is also in line with its dividend policy.

The firm also finds itself in a “strong capital position”, with £600m in regulatory surplus.

Its biggest challenge will be cash-strapped consumers shying away from making investments as further economic troubles loom. And this was highlighted through the dip in fee-based revenue.

Yet despite this, I’d still buy today. Its monumental dividend yield is a major pull for me. And I see real long-term opportunity in a strong FTSE 100 brand that’s taken a beating in recent times.

The post 2 top dividend stocks to help fight double-digit inflation! appeared first on The Twelfth Magpie.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The finance firm’s stock looks cheap right now with a yield of over 9%. But should I invest or be wary of a value trap? Let’s find out. 

Passive income is the way 

My main goal for my investing journey is to maximise savings from my day job and retire early. And this quest for financial freedom isn’t unique. Millions of investors have slowly woken up to the power of dividends. Looking at the Google search data for ‘passive income’ since 2004 (see chart below), the jump in popularity over the last two years is clear.

A stable passive income portfolio could be incredibly rewarding in the long run. Many investors have used dividends to retire in their 40s. And it doesn’t require complicated analysis either. Looking for stable businesses with strong cash flow and a history of dividend hikes is a good starting point. How do Abrdn shares fare in these areas? 

Share price analysis 

Abrdn shares are currently trading at 160p at a price-earnings ratio of a measly 3.5 times. Factoring in the 9.1% dividend yield, this asset manager’s stock looks very attractive on paper. 

But shareholders have been selling this stock in record numbers. Down 44% over the last 12 months, Abrdn shares rank 98th in the FTSE 100 for returns. 

Looking at the 2021 results, I think the asset manager had a strong year. Its fee-based revenue model generated over £1.5bn from its total assets under management (AUM) worth £542bn.

As of 2022, Abrdn’s 9.1% yield is covered 1.18 times on an adjusted capital generation basis. While this is higher than 2020’s cover of 0.84 times, the board has made it clear that the current 14.6p per share payout will remain unchanged until a capital cover of  1.5 times is met. 

This makes a dividend rise in 2022 unlikely. But the board is confident of a progressive dividend hike in the next few years so the firm may be able to maintain its high yield longer term.

A major concern here is the revenue from fees. The current economic slowdown is already affecting the average trading volume in the US and UK. People are likely to protect savings during inflation, which could cause private investment figures to drop. And historically, finance firms perform poorly during inflation because of lower activity. 

I also understand that passive income can’t make me rich overnight or completely offset the effects of inflation. Depending on my capital, it could take decades of diligent investing before payouts are large enough to support my retirement.

However, as a passive income option for the long term, the Abrdn share price looks very attractive right now. The company seems to be in a decent financial position and the board is expecting a tidy jump in earnings this year as well. But I think I will wait for the half-yearly results scheduled for 9 August. I’d consider an investment in Abrdn if the results look favourable.

The post Should I buy Abrdn shares just for the 9.1% dividend?  appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

FTSE 100 dividend income shares are a terrific way of building wealth for the future, and after this week’s stock market fall, many look great value.

Asset managers always have a hard time of it during a crash, so buying them involves a fair bit of risk. Yet I’d snap up fund manager Abrdn (LSE: ABDN) today. It offers me a hugely attractive dividend income yield of 7.9%. That should help my portfolio keep pace with today’s surging inflation rate.

With luck, I will also see some share price growth on top, once markets recover, as history shows they always do at some point.

The Abrdn share price has been hit hard in a turbulent year for shares, falling from 248p to around 184p per share, at time of writing, a drop of more than 25%. To some investors that might look like a disaster. To me, it’s a chance to buy a top dividend income share at a reduced price.

I’d buy fund manager Abrdn for its 8% yield

When a top dividend income stock falls in value, you have to look at the reason why. In this case, it is due to factors beyond Abrdn’s control. In a stock market crash, good shares fall with the bad. Fund managers have even less chance of escaping the fallout.

Abrdn has been doing pretty well otherwise. In March, full-year revenues increased for the first time since its troubled £11bn merger with Standard Life in 2017. Adjusted operating profit for the year to 31 December rose 47% to £323m. Net fund outflows fell from £12.3bn in 2020 to £3.2bn. It is finally heading in the right direction.

The company’s dividend income stream is generous but covered just one time by earnings. Management held the annual payout at 14.6p a share last year, the same it paid in 2020 (it was cut from 21.6p in 2019). The board plans to maintain the dividend at this level until cover strengthens to 1.5 times. That could take a few years, but I’m not complaining, given today’s sky-high yield.

This is a top FTSE 100 dividend income stock

Abrdn bought investment platform Interactive Investor for £1.5bn last year, giving it access to the platform’s 400,000 retail customers. It now has a strong base in the growing online trading market. Interactive Investor is a respected, established brand. The purchase also gives Abrdn a reliable income stream from monthly subscriptions.

This FTSE 100 dividend income share has been through a tough spell but now stands on more solid ground. The big threat, of course, is that stock market volatility will increase fund outflows and deter Interactive Investor customers from pumping more money into the market. It could have the opposite impact, of course. Some investors like volatility.

These short-term ups and downs do not trouble me. When I buy top dividend income stocks, I aim to hold them for the long term – to retirement and beyond. Today’s valuation of just 13.3 times earnings looks like a solid entry point to me. That near-8% yield is too tempting to resist. I’d buy it for the long term.

The post I’d buy this 8%-yielding FTSE 100 dividend income share today appeared first on The Twelfth Magpie.

More reading

• How much second income could I make from £10k in the stock market?
• Has this FTSE 100 dividend stock finally turned a corner?
• How much do I have to invest in this newly-promoted FTSE gem to target £7,927 a year in passive income?
• Aberdeen shares are back in the FTSE 100 — is this turnaround stock just getting started?

Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. 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.