We’re now past the ISA deadline for the 2020/21 subscription period. So my £20,000 allocation resets, and I can put money into my Stocks and Shares ISA and invest it as I see fit with less urgency.
But given the fact that there’s still a lot of uncertainty within the economy, I want to allocate some funds now into UK dividend stocks. That way, I can try to accumulate income. Even though I’ll leave it within my ISA so that I get the dividends paid gross of tax, it’s good to know I’m building a pot that I can call on if I need.
UK dividend stocks I’m considering
Even though some companies have cut dividend payouts due to the negative impact of the pandemic on cash flow, there are still multiple options. One that I like at the moment is Unilever (LSE:ULVR). The current dividend yield is 3.47%.
Unilever is a well known company that owns over 400 consumer brands. It focuses on three main divisions (food & drink, home care and personal care & beauty). Given that many of its brands are ‘needs’ versus ‘wants’, I think it’s a conservative UK dividend stock that doesn’t pose high risk.
This can be seen from the 2020 results. Even during a global pandemic, revenue only shrank by 4.2%. GAAP net profit actually grew slightly, by 0.8% versus 2019. I like this stability in earnings, and it’s something I think that will support a dividend continuing to be paid in the future.
A potential risk here is that because of the size of the business, high future growth is likely limited. For a company that turns over €12.1bn, I struggle to see a catalyst for double-digit annual growth. Versus a smaller and newer company, the opportunity cost to invest is quite high.
Shopping around for a deal
A second UK dividend stock that interests me at the moment is Admiral Group (LSE:ADM). It’s a financial services business, mostly serving the UK via home and vehicle insurance. It also operates websites including Confused.com for price comparisons.
This UK dividend stock currently offers me a yield of 3.8%, which is above the FTSE 100 average. Added to this is a positive outlook for it, in my opinion.
Profit grew by 21% in 2020, largely driven by growing the customer base by 10%. It’s also focusing heavily on further digitalisation and technology upgrades, something that I think will pay dividends (pardon the pun) going forward.
Although not something I usually put much weight on, Admiral also has a great company culture. It won three awards for being on shortlists of the best places to work in 2020. During the pandemic and remote working, having employees who feel valued (and therefore will go the extra mile to help), is important.
The risk for me is the personal loans side of the business. Given the economic uncertainty in the UK right now, I’d be concerned about possible defaults here damaging the overall performance.
Both the UK dividend stocks mentioned above offer me above average yields to add into my ISA. I’d consider buying both now.
