I’m feeling surprisingly bullish for a foggy November day, and in a mood to buy bargain UK dividend shares.

When I look at some of my favourite FTSE 100 income stocks, many appear to be trading at irresistible prices. At the same time, they offer blockbuster yields.

In the last month I’ve bought the two biggest yielders of all, housebuilder Persimmon and miner Rio Tinto. I don’t intend to stop there. When opportunity comes knocking, it seems rude not to respond.

I’m on the hunt for dividend shares

I recently flagged up Lloyds Banking Group (LSE: LLOY) as a dividend stock I’m ready to buy. The bank trades at just 5.8 times earnings and yields a well-covered 4.65% a year. 

Naturally, it comes with risks. The recession could lead to a sharp rise in debt impairments among its small business and retail customers. On the other hand, higher base rates should help Lloyds boost net interest margins.

Given that I plan to hold the stock for decades, short-term issues like these don’t mean that much to me. I’m delighted to have an opportunity to buy this dividend stock at what looks like a tempting valuation to me.

Household goods giant Unilever (LSE: ULVR) is also on my buy list. For years it was expensive, trading at around 25 times earnings while yielding just over 2%. Its recent troubles have produced a much more attractive entry point.

Today, Unilever yields a halfway decent 3.65% and trades at a relatively cheap 17.18 times earnings. Management has a challenge on its hands, as the group has lost its way over the last year or two, but it’s not exactly in mortal peril. 

A full-blown Unilever share price recovery could be several years off, but I’ll bide my time while management gets its act together. Once I’ve bought the stock, I can start reinvesting the dividends to build my stake ahead of any recovery.

I’m keen to add another FTSE 100 high yielder to my buy list, ideally one paying higher income than these two.

Huge yields to be had

Insurer Legal & General Group (LSE: LGEN) has long been a favourite of mine. If I’d been sharper, I would have bought the stock during the pensions meltdown that followed ex-Chancellor Kwasi Kwarteng’s disastrous mini-budget. Legal & General shares have rebounded 22% since Jeremy Hunt brought stability. 

They’re still down 16% year-to-date and are 6% lower than five years ago. It’s valued at 7.29 times earnings and yields 7.46% a year, covered 1.8 times by earnings. I need to dig a bit deeper than this before shifting it to my buy list, but so far the signs are positive. The L&G share price hasn’t grown much in years. But it’s the income I’m after.

The FTSE 100 has recovered in recent days and is up 7.1% over the last month. Yet all three of these dividend shares still look cheap to me. I expect to buy the set before the year is out. If the FTSE 100 dips, I’ll act sooner rather than later.

The post Dividend shares look cheap to me. Here are 3 I’m keen to buy  appeared first on The Twelfth Magpie.

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• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• 3,566 shares in this FTSE 100 stalwart earns a £1,443 second income
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years

Harvey Jones holds shares in Persimmon and Rio Tinto. The Motley Fool UK has recommended Lloyds Banking Group 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.

I am keen to go shopping for dividend stocks, as share valuations fall and yields rise. There are so many tempting income shares on the FTSE 100, I’m having trouble making my choice. The following three jump out, though.

To offer some respite against current volatility, I would consider buying dividend aristocrat National Grid (LSE: NG). It looks cheap today, with the share price falling 25% in the last six months. That has depressed its valuation to just 14.8 times earnings.

I do not expect much share price growth from National Grid. Its stock still trades at roughly the same level it did five years ago, while earnings are tightly regulated. But it has offered a solid income stream for years, and today the yield is a healthy 5.6%. That kind of income offers me some protection against today’s raging inflation.

Dividend stocks fight inflation

Trading has been solid so far this year with revenues been boosted by the strong US dollar. The group owns gas and electricity distribution across the Northeastern US and these revenues are worth more once converted into pounds.

Rising interest rates pose a problem for many sectors but banking is a rare exception. Higher rates allow them to widen net interest margins, the difference between what they charge borrowers and pay savers.

I’m turning my attention to NatWest Group (LSE: NWG), which now trades at just 9.3 times earnings after falling almost 10% in the last month. Again, long-term share price performance is underwhelming, as it is down 5% over five years. However, its 4.93% yield should keep me happy while I wait for its shares to recover.

Results have been good lately, with pre-tax profits jumping 13% to £2.6bn for the six months to 30 June. Management now expects a full-year return on tangible equity of 14%-16%, up from prior estimates of 10%. A recession and house price crash would hit customer confidence and increase debt impairments, but that risk is reflected in the low share price.

This stock really excites me

My final and perhaps most exciting dividend stock is consumer goods giant Unilever (LSE: ULVR). I’m excited, because the stock trades at around 17 times earnings, when its valuation is usually closer to 25 times.

Similarly, the yield is now 4.43%, when I’m used to seeing it closer to 2.5%. The reason for these figures is that the Unilever share price has floundered, falling 3.75% over one year and 11% over five years.

Management has struggled to get a grip on poor performance, but now there are signs of a turnaround.

Its new business unit structure should cut costs and speed growth, and analysts at Berenberg recently hiked its share price target from £40 to £48 as a result. It currently trades around £39. Again, I’m not expecting a sudden share price spike — these are uncertain times. I appreciate the risk of investing in Unilever when its customers are feeling squeezed, but here’s why I’d still buy it.

I’m treating all three of these dividend stocks as long-term buy-and-hold investments. Today’s low valuations make now a good entry point.

The post These 3 dividend stocks are top of my shopping list appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended 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.

Nothing lasts forever, as anybody who thought the Unilever share price would climb endlessly upwards has now discovered. This FTSE 100 dividend growth hero has performed poorly over recent years, and some investors have abandoned it all together. Not me. In contrast, I reckon now is a great time to buy rather than sell.

Household goods giant Unilever (LSE: ULVR) is much admired by investors because it offers a wide range of branded everyday products that billions of global consumers purchase on a daily basis. Soap, toiletries, deodorant, Bovril, it’s got everything. It has also delivered a winning combination of rising share price and dividend income, through good times and bad.

Still one of my favourite FTSE 100 stocks

The Unilever share price has typically been a bit expensive, trading at around 24 times earnings. Rapid share price growth also meant the dividend yield looked relatively low, typically 2.5% or lower. Things have changed now.

The Unilever share price has fallen more than 12% over the last year, as rising commodity costs eat into margins. This isn’t a one-off slip. Over the last five years, the stock is up a disappointing 13%.

Big investors are sceptical. Investment bank UBS has warned of deteriorating market share, as rivals P&G, Loreal and Nestle plan to ramp-up marketing spend. Unilever has been forced to push up prices to boost margins, and that could hit sales. Cost inflation may force further hikes.

The pandemic has squeezed the Unilever share price from two sides – home care sales have fallen as Covid recedes in Europe, while a resurgence in Asia has hit general sales. Yet I reckon current uncertainty is an opportunity rather than a threat.

This £100bn FTSE 100 giant has the experience and resilience to muscle its way through current problems. Its brand portfolio remains impressive, and the pandemic will not last forever. Personally, I have no idea how enduring inflation will be. Yet investors seem to be pricing in quite a lot of damage, and this is opening up an opportunity for investors.

I’d still buy the Unilever share price

Unilever is down today but history suggests this is when you want to buy it. Instead of paying top dollar when the group is trading close to 25 times P/E , I’d rather fill my boots at today’s relatively modest 18.68 times earnings.

Another attraction is the yield. Right now, the Unilever share price comes with a dividend income of 3.77%. That’s higher than I’ve been used to seeing over the last decade. Management has always had a progressive attitude to increasing shareholder payouts, so that passive income will grow over time.

I would never buy any individual company stock with a timeframe of less than five years (and ideally much longer). Yes, management faces plenty of challenges problems, but today’s troubles won’t last forever. Nothing does. When they pass, the Unilever share price should rise again. In the meantime, I’ll keep on investing my dividends.

The post The Unilever share price is down. That’s why I’d buy it for passive income today appeared first on The Twelfth Magpie.

More reading

• 3,566 shares in this FTSE 100 stalwart earns a £1,443 second income
• 2 FTSE shares for beginners starting an ISA
• Is this former stock market hero now the ultimate FTSE 100 buy and hold?

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

Income investing has not been that popular lately, given that we have been in the greatest bull market of all time. Momentum and growth at a reasonable price investing styles have been more in favour. 

But as we get older and richer, capital growth becomes less important and income becomes more important.

Here’s how to invest in income stocks.

Find a company with an enduring moat

When it comes to income, we want to make sure that our investment is protected with a large moat. We want stocks in companies with untouchable positions in their markets – think Coca-Cola. Any drinks start-up funded with a few million is not going to make a dent in Coca-Cola’s global domination.

Or what about Unilever? It’s highly likely you have several of its products in your house. Anyone wanting to take on the might of Unilever would have to fight on many fronts to wrestle sectors and territories from the company’s vise-like grip.

Find a company with strong and stable cash flows 

Companies that generate consistent cash year-on-year are quality candidates for income investing. We don’t want a business that one year makes a huge amount of cash only to do poorly the next. Companies that are able to convert plenty of their steadily growing profits into cash are companies we can consider for a dividend-oriented portfolio.

We also need to make sure that the dividend is more than several times covered by cash flows. A good rule of thumb is that the dividend should be covered three times. That way the company can manage minor problems without any risk to the dividend. It would take really serious problems to raise the risk of the dividend being cut.

Find a company where the dividend is not likely to be cut 

If a company has a dividend yield above about 8%, it may be a sign that the market does not view the dividend as sustainable. 

The market is normally efficient regarding larger-cap stocks, so if a company with an usually high dividend yield were a good investment, then everyone would take advantage – which would increase the price and reduce the yield.

Ideally, we want a moderate dividend yield of about 3% to 5%. A long track record of sustained dividends, or even better, of growing dividends, is also something to look for in a candidate for an income investor’s portfolio.

By picking companies that have enduring moats, consistent cash flows and a high profits-to-cash conversion ratio, as well as a sustainable dividend, we can create income portfolios that will grow in a slow and steady manner. 

The post How to invest in income stocks appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

Michael Taylor does not hold a position in any of the stocks mentioned. The Motley Fool UK owns shares of and has recommended 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.