In the current interest rate environment, I’ve been looking for dividend stocks to add to my portfolio to boost my income.
Buying dividend stocks can be a great way to grow income, but it isn’t a strategy suitable for all investors. It’s certainly not as safe as putting money in a savings account.
However, I’m comfortable with the level of risk involved with buying dividend stocks. So here are three companies I’d buy for my income portfolio.
Dividend stocks to buy
The first on my list is asset manager Brewin Dolphin (LSE: BRW). The corporation is benefiting from rising stock markets and increased customer numbers. The group reported a near-11% increase in funds under management to £52.6bn in its latest trading update.
I think this growth could support substantial profit expansion for the year, underpinning the firm’s dividend. At the time of writing, the stock supports a dividend yield of 4%. That said, we all know stock markets can rise as well as fall.
Brewin Dolphin may have benefited from rising markets recently, but assets under management could fall if markets change direction. Ultimately, this would reduce profitability and may even force the company to cut its shareholder distributions.
Despite this danger, I’d buy the business for my portfolio of dividend stocks today.
I’d also buy distribution group Bunzl (LSE: BNZL). According to its recent trading update, group revenue in the first quarter was up 5.4% at actual exchange rates, with acquisitions contributing revenue growth of 4.3%.
The organisation has benefited from increased demand for personal protection equipment and cleaning chemicals, which it supplies to companies worldwide.
I think this revenue growth could translate into profit expansion. That, in turn, would help fund Bunzl’s dividend. At the time of writing, the stock supports a yield of 4%.
Bunzl relies heavily on acquisitions to drive growth. This has helped the company in the past, but past performance should never be used as a guide to future potential. If the corporation over expands or borrows too much to fund deals, profits could collapse. That’s something I’ll be keeping an eye on.
The final company I’d buy for my portfolio of dividend stocks is Tesco (LSE: TSCO). This retailer currently offers a dividend yield of 4.1%. The distribution is backed up by the supermarket giant’s healthy cash flows.
As food and drink is a defensive industry, I’m confident the company can continue to support the dividend. Consumers will always need to eat and drink, and there’s usually a Tesco nearby to meet this need. I think this implies the business will be around for many decades to come.
Still, the firm can and has made mistakes. For example, it had to cut its dividend several years ago as an accounting scandal wiped out profits.
There’s no guarantee this won’t happen again. Rising costs may also reduce the group’s profit margins. This may limit Tesco’s ability to return cash to investors.
Despite these risks and challenges, I’d buy the company for my portfolio of dividend stocks today.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Bunzl and Tesco. 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.