Considering the current interest rate environment, I’ve recently been looking for UK dividend stocks to add to my portfolio. I believe this is one strategy I can use to increase my income when interest rates are at record low levels.
I’m aware that dividend income is never guaranteed. Investors may not always get back as much as they invest when buying stocks and shares. As such, buying dividend stocks may not be suitable for all. Nevertheless, I’m comfortable with the level of risk involved. That’s why I would buy the two UK dividend stocks below for my portfolio today.
UK dividend stocks on offer
The first company I would buy, with a dividend yield of 6.7%, is PayPoint (LSE: PAY). I think this is an overlooked electronic payments champion in the UK.
The company provides point-of-payment services and other facilities that let consumers pay for services, such as utilities, electronically. It provides a vital bridge between those in the economy who have digital skills and those who don’t.
The business is highly profitable. Last year it reported an operating profit margin of 27%. This provides plenty of cash to facilitate the dividend to investors.
At the time of writing, the stock is trading at a forward price-to-earnings (P/E) multiple of 11.4. Analysts at Canaccord Genuity have a price target on it of 800p to 825p.
The company faces some challenges as well. The digital sector is highly competitive, and it may be only a matter of time before a competitor comes to steal PayPoint’s lunch. Larger competitors such as PayPal have deeper pockets and more substantial brand recognition.
Still, despite these risks, I would buy the stock for my portfolio of UK dividend stocks today, considering its market-beating dividend yield and valuation.
Beating expectations
At the end of April, meat casings manufacturer Devro (LSE: DVO) announced that its sales had increased 4.6% in the first quarter of 2021. That followed a relatively robust 2020, despite the pandemic.
Overall, analysts believe the group will report a modest decline in earnings this year. However, these are just projections at this stage. Based on the company’s first-quarter performance, it could be on track to outperform the City’s target.
The City has also pencilled in a dividend yield of 4.4% for the year ahead. Once again, this is just a forecast, and there’s no guarantee the company will hit this target. The group has already warned that another wave of coronavirus could cause it to report a substantial decline in sales and profits for the year. This is the most considerable risk the business faces right now.
Despite this, I would buy the company for my portfolio of UK dividend stocks. The dividend yield of 4.4% looks attractive, and the firm is trading at a forward P/E of 12.6, which is not too demanding in my eyes.
