There are many ways to earn a profit in the stock market (and an equal amount of ways to make a loss!). A favourite method among investors to earn passive income is by owning dividend shares.

With inflation and interest rates on the rise, the stock market is becoming increasingly volatile. For this reason, I am on the hunt for high-yielding, low-risk dividend stocks I can add to my portfolio.

By investing as little as £100 a month into these stocks, and reinvesting the dividends, I believe I could be making well over £10k a year by the time I retire. Here’s how I plan to do it.

The method

I am currently 21, so I would be looking to pay £100 a month for the next 30 years. A spare £100 may be hard to find, but for context, skipping a £3 morning coffee each day pretty much covers it!

The key here is to keep up my payments and reinvest my dividends. By reinvesting my dividends, I can benefit from compound interest. For instance, starting at £0, and by investing £100 a month for 30 years, I could end up with well over £400,000, assuming a 13% annual total return (dividends plus company growth).

Assuming the above growth rate, I would reach my £10k target by year 18.

The stocks

I want to be earning passive income, which means I need to pick high-yielding dividend stocks. The best companies to pick here are slow-growth, stalwart industry giants. These companies are the most likely to turn over regular dividends and keep producing cash flows. A small amount of industry research and checking historic dividend payments should help me here.

A method I would plan to use in order to minimise risk would be to diversify my portfolio. This means picking high-dividend stocks across separate industries. Therefore, if one sector underperforms, its losses may be made up for by growth in another sector.

With the macroeconomic outlook looking increasingly uncertain for the next few years, this could be an essential method to employ.

The risks

While this sounds great on paper, it is not a foolproof method. There is no way of predicting a stock’s future dividend payments or annual returns (if there was, we would all be rich!).

Events like the Covid-19 pandemic force companies to skip dividends and even stop paying them for long periods of time. For this reason, it might take me longer than 18 years to reach my goal of £10k in passive income.

However, by year 30, I am confident that I will be able to hit that goal, even if I have to make some minor changes to my dividend portfolio along the way.

The post How I’m using £100 a month to try to earn £10k a year in passive income appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

As a long-term dividend shares investor, I’m a firm believer that it’s far easier to save your hard-earned cash when you have a purpose for that money.

For some people, that might be as simple as wanting a better standard of retirement. For others, it’s perhaps a safety net for quitting an unloved job.

As for me, I’m an avid explorer, and suspect I will be for a long time yet. So, the idea of investing in dividend shares to pay for my travels had me hooked from the start.

How do dividend shares pay for my holidays?

The theory of using dividend shares was pretty simple. I planned on investing in enough shares so that the total dividend payments would pay for my travels. And since I wouldn’t touch the underlying investments, they would continue to do so each following year.

So, I started saving money each month, and buying good quality dividend-paying companies. It wasn’t always easy to find the money to save or to know which shares to pick.

And undeniably, it was hardest at the start, when I was saving hard but not seeing much happen. But as any Fool knows, investing is very much a long-term game. It all became far more interesting when the numbers started to add up after a few years.

These days, my dividend portfolio produces enough cash to pay for my trips away every year — now that was worth saving for!

What makes a good dividend portfolio?

When assessing what investments to include in my dividend portfolio, I have a few simple guidelines I look to follow.

• Consistency — are there any gaps in the payment history?
• Growth — are dividends increasing steadily over time?
• Diversification — will this investment help diversify my portfolio?

Following these principles, I now own a wide range of income-paying investments. Usually, I like to have between 10 and 15 different assets. And in that group I have both individual shares, like BP, alongside dividend-focused ETFs such as S&P Euro Dividend Aristocrats.

Why is it so important to have a range? Well, dividends are not guaranteed. But, if a company does cut its dividend, the average dividend yield on my portfolio will fall less when diversified than if I only own one or two shares.

But how did I know how much I needed to save?

How much do I need to have invested?

When working out how much I needed to have invested, it’s the average dividend yield of my portfolio that matters.

For example, my original investment portfolio has grown over time to have an average dividend return of around 10%. That means that if I have £40k invested, the equivalent of two Stocks & Shares ISAs, I will likely generate around £4k each year.

Even with inflation and the cost-of-living challenges, that still gets me a good break away to somewhere warm and sunny.

It’s not completely work-free and I still need to re-evaluate each position regularly. I like to read a diverse range of share analyses, like at The Motley Fool. That means I can swap out any under-performers for better quality investments.

That effort all seems entirely worthwhile when I’m walking down the beach towards a chilled beer. Now that’s happy travels!

The post Dividend shares are paying for my summer holiday! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Michelle Freeman has positions in BP and SPDR S&P EURO DIVIDEND ARISTOCRATS ETF. 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.

Reasons behind the dividend hike

Rio is the world’s 114th largest public listed company and has been a FTSE 100 dividend stalwart for several years now. In the midst of rising inflation in the UK, many investors have turned to Rio shares to counter some budget pressures, and for a good reason.

In 2021, high demand for iron ore in China drove Rio Tinto’s sales and allowed the miner to record profits of $21.4b. This marked a 72% jump in revenue from 2020, the biggest surge in the firm’s history. A post-tax profit of $13bn prompted the board to release a total dividend of $10.4 per share, which included a special dividend of $2.47 per share. Rio’s total dividend is now 87% higher than last year.

Should I buy?

My colleague Christopher Ruane argued that the cyclical nature of the mining industry means that this strong period of demand will cool down. And when this happens, Rio might be forced to cut dividends. However, I think that the last two years have completely shaken up most traditionally cyclical sectors. For example, the notoriously cyclical UK housing industry is riding a decade-long boom and analysts predicted a crash in early 2021. But driven by the increased demand, sales figures and new home prices have constantly been close to all-time highs.

Also, given the global political climate, defence spending has been increasing steadily over the last decade. Even during the coronavirus’s peak in 2021, several prominent economies raised defence spending. China increased its defence budget by 6.8% to 1.35trn yuan (US$209bn) in 2021. The Stockholm International Peace Research Institute’s report showed that global military expenditure reached US$1.98trn in 2020, 2.6% higher than 2019.

And military development is a commodity-heavy venture that requires metals, fuel, and gold. Increased military spending over the next decade could support the commodity market. Although the sky high crude oil prices may cool down in the short term, I think the current volatility in the market will boost commodities for the foreseeable future.

Concerns and verdict

Analysts expect the mass adoption of alternatives like lithium to curb the demand for traditional metals. But creating a supply-demand balance for new commodities could take years of R&D and lobbying. Also, geopolitical tensions could result in trade restrictions. And the commodity market has been fluctuating a lot in the past year. Prices in the current climate could come tumbling down.

Although this is a huge risk, Rio’s board expects steady growth in 2022 as well. The company is diversifying into battery metals, including lithium. Although I do not expect the current 13.5% yield to continue, I think the mining giant can maintain an above-average yield, which is why I am considering Rio Tinto shares for my portfolio right now.

The post Here’s why I’d buy Rio Tinto shares just for the record dividend yield 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.

The Lloyds dividend

During the pandemic, Lloyds and other British banks were ordered by their regulator to halt dividend payments. Lloyds reintroduced its dividend last year, although at a far lower yield. I can see this as being a decision made out of caution, but it did little to incentivise me to invest. I’m sure shareholders at the time also had their grumbles.

Meanwhile, the company’s cash reserves continued to expand. When the financial system faces increased risks, banks are required to have a cushion of surplus capital to help sustain liquidity. However, I’m not a fan of banks holding large amounts of surplus capital, as history is filled with examples of their squandering it on ill-advised purchases. Instead, I prefer banks like Lloyds to give out extra cash as dividends to shareholders. The bank has declared that it has a progressive dividend policy, implying that it intends to increase its distribution in the future. That, however, is never certain.

Fiscal results are due

Lloyds should release its full-year results on Thursday. I anticipate a solid set of figures based on what we witnessed in the first three quarters. However, there are dangers. Because of the company’s large mortgage book, any collapse in the housing market might impact profitability. Inflationary forces, such as rising energy prices, might raise the predicted default rate among borrowers, reducing earnings.

I see these outcomes as unlikely. House prices have risen quickly over the past few months, and the end of winter will see a reduced reliance on fossil fuels. But the risk is there.

Lloyds will also publish its projected final dividend for 2021. I am positive about this, given its cash position and industry developments. For example, competitor NatWest stated yesterday that it will pay a final dividend of 7.5p per share, up from 3p last year. Lloyds’ yield would rise to 4% if it hiked its final dividend at the same rate.

Will Lloyds raise its dividend?

So will the bank raise its dividend? Despite all of the positive press, we won’t know what Lloyds’ dividend plans are until Thursday. While it will benefit from a slew of new investors buying in to make the most of the buyback I think it pays to keep expectations low for now.

There’s a good chance that the current share price has already priced-in the dividend increase. This could help to explain why the share price has risen so much in the last year. If expectations aren’t met, a small rise could even cause the stock to fall. A significant gain, would be more appealing to investors.

Still, Lloyds has proven to be a solid business that takes care of its shareholders in times of crisis. I’d be happy to add it to my portfolio once the dividend details are made public.

The post Will a new Lloyds dividend and share buyback boost the share price? appeared first on The Twelfth Magpie.

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• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Rising inflation, tensions between Ukraine and Russia, and a stubbornly persistent pandemic have combined to put markets in a tizzy right now. Not that I think this should really bother me as I invest for passive income.

Theoretically, holding dividend-bearing stocks should take a lot of worry out of investing. One can simply buy and hold and wait to be paid every three or six months. The money received can help with bills and other living expenses or be reinvested into buying more shares. Naturally, the second course of action is far more Foolish since it allows gains to compound, growing wealth over time.

Top passive income stocks to buy

With this in mind, here are 22 UK stocks I’m interested in to buy and hold for 2022 (and their forecast dividend yields).

• 888 (4.5%)
• Barclays (4.3%)
• Bloomsbury Publishing (2.8%)
• Britvic (3.1%)
• Burberry (2.5%)
• CMC Markets (4.2%)
• Diageo (2%)
• GlaxoSmithKline (3.3%)
• Hipgnosis Songs Fund (4.5%)
• IG Group (5.5%)
• Lok ‘n Store (1.9%)
• Lloyds Bank (4.9%)
• National Grid (4.7%)
• Persimmon (10.1%)
• Primary Health Properties (4.6%)
• Rio Tinto(8.9%)
• Somero Enterprises (6.7%)
• Target Healthcare (6.1%)
• Taylor Wimpey (8.3%)
• Tritax Big Box (3.1%)
• Tritax Eurobox (4.8%)
• Unilever (3.7%)

Rather than attempt to cover every stock, let’s pick out a few highlights that appeal to me most by sector.

Financials

Due to the complexity of their balance sheets, I’m not really a fan of banking stocks. That said, I see the appeal if I were looking for passive income. Many offer decent yields. Moreover, banks could finally see positive momentum if interest rate hikes become more frequent. As such, I’d include perennial retail investor favourite Lloyds Bank in my 22-strong portfolio. Barclays would also be there as it benefits from having a lucrative investment banking arm, in addition to boasting a 4.3% forecast yield.

Online trading platform providers are far more my cup of tea and act as a potentially useful hedge against market volatility. As a holder of IG Group already, I can’t help but include it here. I’d also be partial to taking a stake in CMC Markets, even though management recently cut the payout. While the industry is often targeted by regulators, these firms stand to benefit when times get tough since they generate more commission from increasingly active clients.

Consumer goods

UK investors are spoilt when it comes to options in the consumer goods sector. In addition to offering decent growth, I also think shares from this part of the market are worth holding for the income they throw off.

Unilever is generating a lot of headlines right now thanks to its recent (and rejected) bid to acquire the consumer healthcare arm of GlaxoSmithKline (which is also on my list). Regardless of what happens next, the Marmite-maker has shown itself to be an excellent source of rising dividends. 

Premium drinks owner Diageo was my pick for 2021 and, my goodness, it did well. Like Unilever, it goes in for the simple reason that it’s shown a real commitment to continue hiking dividends over the years.

REITS

In exchange for not paying corporation or capital gains tax, REITS (or real estate investment trusts) are required to pay out 90% of their rental income to investors in the form of dividends. That makes them ideal candidates for a portfolio like this.

I’ll admit to being biased toward firms that specialise in buying/managing portfolios of warehouses and logistics assets since I don’t think there’s much chance of the online shopping trend going into reverse. I’d pick out Tritax Big Box and its Europe-focused equivalent Tritax Eurobox. Dividends at self-storage provider Lok ‘n Store are also growing at a fair clip.

Trusts specialising in owning buildings related to healthcare are another great option. I particularly like Primary Health Properties and care home provider Target Healthcare.

Other

Some of the 22 either don’t fit a particular sector or remain my sole pick from a specific part of the market.

Somero Enterprises would make the list of 22. While its shares could prove to be more volatile thanks to its small-cap status, the company is a leader in supplying equipment to ensure concrete surfaces are flat. Thanks to the US construction boom, it’s been raking in the cash.

No passive income portfolio would be complete without a utility stock. Energy transmission and distribution business National Grid is my preferred choice here. While annual increases aren’t electrifying, the essential nature of what it does should mean that there’s little danger of the company stopping its dividend payments. 

While the mining sector is notoriously cyclical, FTSE 100 member Rio Tinto has its fingers in so many commodity pies that the rewards should outweigh the risks. The company also stands to benefit hugely from the clean energy revolution. 

BAE Systems seems a rather pertinent choice given what’s happening in eastern Europe right now but it would have made the list regardless. While it hasn’t rocketed in value over the years, the consistency shown by the defence behemoth in raising its bi-annual payouts is second to none. 

A few things to consider

Although there’s no perfect number, I believe that 22 stocks should really give me all of the benefits I need from spreading my money around. Fewer than this and I may be taking on too much risk; more and the law of diminishing returns kicks in. 

Second, I’ve intentionally avoided picking only the highest-yielding stocks on the market. This might seem odd if the goal is to generate passive income. However, those appearing to offer the largest payouts are often those most likely to cut them (a high yield can be the result of a plunging share price due to poor trading). It’s far better, at least in my opinion, to buy company stocks where dividends are growing rather than standing still. That’s exactly what’s been happening at many of those listed above.

Third, it’s vital to remember that this isn’t the only strategy available to me. Another option is to buy a few actively-managed income-focused funds. As one might expect, this incurs fees that ultimately eat into eventual returns. The beauty of running a portfolio myself is that, aside from the costs of acquiring the stocks and the ongoing platform charge, there’s nothing else to pay.

No crystal ball

Last, it’s important to acknowledge that some of the 22 dividend stocks I’ve picked out won’t do as well as others in 2022.  The share prices of a few may soar, others may dip. But I’m aware that all stocks come with risks. 

Yet this is missing the point. The objective here is merely to select great dividend stocks. Passive income is the goal here, not capital gains. If I were looking for the latter, very few of the above would probably make it into my portfolio. But that’s a list for another day.

The post 22 dividend stocks to buy and hold for passive income in 2022 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Burberry, IG Group and Somero Enterprises. The Motley Fool UK has recommended Barclays, Britvic, Burberry, Diageo, GlaxoSmithKline, Lloyds Banking Group, Primary Health Properties, Somero Enterprises, Inc., Tritax Big Box REIT, and Unilever. 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.

Mammoth 15%+ yield

The first company I’m looking at to make a £1,000 investment today is FTSE 100 miner Evraz (LSE: EVR). The company is one of the largest producers of steel in the world but also has large reserves of coal, iron ore and vanadium.

I am looking at Evraz primarily for the 15.5% dividend yield, which sounds too good to be true. I am wary of a value trap when it comes to such a high-yield stock, but Evraz’s performance last year was strong. Apart from 2020, a year marred by Covid, it has managed to pay out double-digit yields since 2017 at an average of nearly 12%.

It is important to note that the FTSE 100 miner has cut its yield three times in the last seven years (including 2020) and the current yield is covered only 1.3 times by earnings, which is a little tight for my liking. Plus analysts expect earnings to drop slightly as the demand for iron ore stabilises in 2022. Evraz is also battling increased taxation on its operations in Russia, which could affect profits. 

But going by recent financials, the company is healthy right now and I do not expect the current yield to fall to 2020’s lows of 9.6%. Increasing energy prices could also bump up coal prices, which will benefit the commodities company. The company expects payouts to continue in 2022 given the strong fourth quarter 2021 predictions. This is why I am considering a £1,000 investment in Evraz shares today.

Finance stock

Asset manager M&G (LSE: MNG) offers a dividend yield of 8.7% at its current share price of 210p. This is higher than the FTSE 100 average of 3.4%, making it a strong passive income option for my portfolio.

I expect a lot of turbulence in the market in 2022. And I know that turbulence brings in new investors, which could benefit M&G in the long run. In fact, the company operates on a lean business model with a large portion of its earnings coming in the form of recurring subscription payments and commissions on executed trades.

Were I looking for shares that also offer growth potential, M&G might not be the right pick for me. Since its split from Prudential and direct listing in October 2019, returns stand at a dismal -6.7%. Also, M&G operates in a very competitive sector and could lose out to major players like Legal & General. 

However, the board has reiterated its stance on increasing shareholder payouts in the coming years. And barring any major financial collapses, I think the company is well placed to deliver on this. I would buy it at the moment.

The post How I’d invest £1,000 in the FTSE 100 for passive income in 2022 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.

Being keen to buy shares in a company that recently slashed its dividend sounds odd. However, that’s exactly what I’d consider doing with one FTSE 250 member right now. Let me explain.

Dividend cut!

The stock in question is online trading platform provider CMC Markets (LSE: CMCX). Earlier this month, the company stated that it would be slashing its half-year dividend by no less than 62% in light of a downturn in business. 

Admittedly, the latest set of interim results wasn’t great. Net operating income tumbled 45% to £126.7m in the six months to the end of September. At £36m, pre-tax profit was an eyebrow-raising 74% lower than in 2020.

The key point to grasp, however, is that none of this is unexpected. The reduction in market volatility seen this year, and subsequent drop in client activity, was always on the cards. A better comparison to make is between this year’s interim figures and those of two years ago. Here, we get a very different picture. Net operating revenue and pre-tax profit were up 24% and 20% on the same period in 2019.

There were other things that the market seemed to ignore, including the 10% rise in active client numbers in CMC’s non-leveraged (stockbroking) business. Already contributing 20% of net operating income, it’s this part of the company that CEO and founder (Lord) Peter Cruddas believes offers “the greatest growth potential”.

Why I’d buy this cheap dividend stock

Yes, that huge dividend cut isn’t ideal. However, what remains still looks attractive. Analysts now have the company returning 10.5p per share for the full year. That’s a yield of 4.5%. Hardly shabby and — importantly — easily covered by profit.

As a fan of founder-run companies, I also really like the fact that Lord Cruddas still owns almost 57% of the company’s stock. This should mean that his interests are aligned with those of private investors. Speaking of which, CMC’s board is now considering separating the aforementioned stockbroking and spread betting businesses for the benefit of shareholders. A review on this is expected to be completed by June 2022. A new UK investment platform is planned to launch at some point next year too. So the outlook is hardly bleak.

Last but not least, the valuation is mightily tempting. As things stand, CMC trades on a P/E of 10. That’s competitive compared to rivals and cheap as chips compared to the market as a whole.

Regulatory risks

Naturally, nothing can be guaranteed. As recent performance has shown, many investors seem to have a love/hate relationship with CMC. A drop in the share price of over 50% in the last six months shows just how quickly sentiment can reverse after a purple patch (it’s up 64% year-on-year). There’s no rule to say it won’t fall further.

Then there are the ongoing regulatory risks to consider. CMC is often required to adapt to new rules brought in to protect clients from, well, themselves. This partly explains why the valuation isn’t demanding, despite CMC Markets generating stonking returns on capital and boasting a solid balance sheet.

Ready to recover

I already hold industry peer IG Group within my portfolio. Nevertheless, I must say that CMC looks highly attractive if I can ensure I’m sufficiently diversified elsewhere.

Considering the renewed skittishness of traders over recent days, I reckon now is actually a great opportunity to snap up the stock before it’s back in favour.

The post 1 cheap dividend stock to buy now appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. 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.

When it comes to selecting the best dividend stocks to buy in the FTSE 100, I’ve long been a fan of defence giant BAE Systems (LSE: BA). And based on today’s trading update, I don’t think there’s much chance of payouts drying up any time soon. 

In demand

This morning, the company reported that demand for its assorted combat vehicles, weapons and technologies “remains high” and that it continued to boast a robust order book and pipeline of opportunities. Importantly, BAE made no change to its guidance. Sales growth of between 3% and 5% is expected for the full year.

Interestingly, BAE commented that it had managed to avoid “any material impact” on its business from supply chain pressures. I reckon there are quite a few stocks in the FTSE 100 that would love to make such an announcement to shareholders.

Investors may also be encouraged by news that many of BAE’s customers, particularly the US, have made it clear that they plan to increase defence spending. Trading in the Asia Pacific region is also expected to “grow significantly”  and ongoing uncertainty in the Middle East should mean the renewal of existing contracts and other opportunities with clients already on BAE’s books. 

A FTSE 100-beating dividend yield

As good as all this sounds, my main incentive for buying BAE now would be for the aforementioned dividend stream. Today, the £18bn juggernaut confirmed that it would be making an interim payment of 9.9p per share this month. That’s a 5.3% rise on the same payout last year (9.4p). This hits on something I consider vital when selecting stocks for income.

For me, a long record of a business consistently raising its cash returns is preferable to one offering a sky-high yield. More often than not, the latter tends to be unsustainable. By contrast, BAE’s dividends should be healthily covered by profits. As a result, I can be more confident it will actually be paid. 

This is not to say that BAE’s yield is low. As things stand, analysts expect the firm to return a total of 24.6p per share for FY2021. At today’s price, that gives a yield of 4.3%. This is higher than the 3.4% or so I’d get from buying a basic FTSE 100 index tracker. It’s also far better than the woeful 0.67% I’d receive from even the best Cash ISA.

No sure thing

As positive as I am on BAE, it must be highlighted that these dividends are never guaranteed. I’d also need to ponder just how long the company can avoid being affected by global supply chain issues. I don’t see any resolution to this for a while. It’s also abundantly clear that we’re still not at the end of the pandemic just yet.

The longer-term performance of the share price also leaves a lot to be desired. BAE’s stock has climbed 30% over the last 12 months. Even so, it’s still 3% below where it stood five years ago. This is why I always need to consider what I might be giving up by not investing elsewhere in the FTSE 100.

As long as I remain sufficiently diversified and that income stream is maintained, I reckon this remains one of the best dividend stocks for me to buy in the index. Moreover, a valuation of 12 times earnings looks reasonable to me, given the encouraging outlook.

The post Here’s one of my top FTSE 100 dividend stocks to buy now appeared first on The Twelfth Magpie.

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Paul Summers 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.

Reliable payer

Last year aside, drinks giant Britvic (LSE: BVIC) has a great track record of regularly hiking its dividends. That makes it attractive at a time of rising prices, since my buying power should be maintained (and potentially increased).

Right now, analysts have the business returning 27.8p per share in FY22 — a stonking 18% increase on that expected for the financial year just completed. 

Using the current share price, this equates to a decent yield of 3.1%. Although buying single company stocks traditionally involves more risk, it’s worth noting this is far more than the 1.9% offered by the index.

Aside from its income credentials, Britvic strikes me as a defensive option, thanks to its bumper portfolio of brands. Returns on capital have also been consistently good. And, thanks to exporting to more than 100 countries, earnings are about as geographically diversified as I could want.

Of course, there’s a chance global supply chain issues and ongoing investment will hit sentiment in the short term. So we could see a bit of selling pressure (and potentially a great opportunity to buy) when full-year results arrive on 24 November.

Meaty hiker

I doubt meat supplier Cranswick (LSE: CWK) hits many income investors’ radars. That’s understandable. A forecast yield of 2% doesn’t grab the attention quite like one offering fives times this amount does. However, I think this qualifies as a stellar dividend stock.

The fact is that CWK is an excellent source of rising cash returns with an average growth rate of over 13% per year. That’s impressive, considering capital expenditure in this (low margin) industry can often be pretty hefty.

In addition to its rising dividend stream, Cranswick has also delivered solid capital growth. Holders would have seen a 55% gain since October 2016. That’s better than the 32% achieved by the FTSE 250 index. Clearly, this margin will have been even greater had those dividends been re-invested. 

Since I doubt whether many people are prepared to give up their sausages and bacon any time soon, CWK should go on rewarding investors long into the future.

Volatility hedge

A final FTSE 250 dividend stock I’d feel comfortable buying today is one I’ve already held for a number of years. That’s online trading platform provider IG Group (LSE: IGG).

Now IGG may not be every investor’s cup of tea for a few reasons. For one, the industry in which it operates is always susceptible to regulatory scrutiny. It’s also fair to say that IG faces significant competition for clients. That’s despite it being the recognised market leader in the UK. 

As credible as these concerns are, I continue to regard this stock as a potentially great hedge against market volatility. When emotions run high (as they did last year), trading activity increases and IG benefits. That’s good news for revenues, profits and, ultimately, dividends.

Currently yielding a forecast 5.4% for the current year, analysts have predicted a 10% uplift to IG’s total payout in FY23. With free cash flow looking very healthy and a US market ready to tap, I don’t see this as unrealistic.

The post 3 FTSE 250 dividend stocks to buy and hold for years appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. The Motley Fool UK has recommended Britvic. 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.

Dividend stocks are stocks you buy because the company they represent pays out a small sum to its shareholders as profit. This can happen once, twice, or even four times a year and the percentages are often much better than what one can get leaving your money in a bank. However, unlike bank interest, dividends are not guaranteed.

Here are two of my top picks from the FTSE 350.

Unilever

Unilever (LSE: ULVR) is a British multinational consumer goods company that owns or partially owns brands such as Ben & Jerries, Graze, and Dollar Shave Club. It currently trades at a fairly high 3,825p but has a very reasonable price-to-earnings ratio of 22. Unilever’s dividend yield currently sits at a mid-range 3.90%. Most importantly in my view, it has paid a dividend every single quarter since 2006.

If I make a quick online search, I can easily find the companies that, right now, are paying the highest dividends on the market. But high yields are often unsustainable and might not last more than a year or so. Of course, there is still no guarantee that Unilever will pay a dividend next year, or a single year after that. But with a long track record of paying shareholders, I feel confident that I can rely on them over the coming years. 

The Unilever share price has been unusually volatile lately, due in large part to the pandemic. My biggest concern, though, is the sheer amount of debt it has taken on since 2018. The company, which has yearly revenues averaging $50bn, now owes over $30bn.

I may wait until the share price comes down a little more, but after that I will be adding shares to my portfolio.

Imperial Brands

The Internet being what it is, I couldn’t help but try to find the ‘best value’ high yield dividend stock. I did this by looking at the current yield, and whether that company has a good ‘moat’ or aspect to its business that protects it from market ups and downs.

Imperial Brands (LSE: IMB) has both of these. This British tobacco company has not made a dividend payment lower then than 10p since May 1999 and currently pays a staggering 8.89% yield.

Tobacco users often have a preferred brand, and sales usually go up in difficult times. That is an excellent moat. It is also why the stock poses ethical concerns for some investors.

Imperial currently trades for 1,553p and has a very enviable price-to-earnings ratio of 5.30, but the value of the shares has been falling fast since 2016. This information gives away the biggest risk with investing in Imperial. The number of tobacco users is falling, and the people who do still smoke, smoke less than previous generations. This is good for our health, but bad for Imperial’s profits.

Personally, I think the dividend is worth the risk, at least in the medium term.

The UK has one of the lowest smoking rates of any country in the world, but Europe continues to have high rates of tobacco consumption. In 2017, 28% of people in France enjoyed some form of tobacco product. That number reaches 40% in Greece.

I fully expect the Imperial share price to continue to fall, so I’m going to wait a couple of months first before adding it to my portfolio.

The post 2 fantastic FTSE dividend stocks I’m watching right now appeared first on The Twelfth Magpie.

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James Reynolds does not have a position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Unilever. 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.