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Three UK dividend shares I’d consider buying and holding

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One of my favourite sources of passive income is investing in UK dividend shares. Here are three that I would consider purchasing now and holding in my portfolio.

Financial services dividend share

The first of the UK dividend shares on my list is familiar to many investors who hunt for income. Insurer and financial services provider Legal & General offers a 6.3% yield. Since the turn of the century, it has raised its dividend in all but three years. The company has set out a plan to raise dividends annually until 2024, although as with any share, dividends are never guaranteed.

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I like the company not just for the dividend, but for its continued business prospects. Demand for financial services is buoyant and I think that could continue in the coming years, boosting L&G’s revenues. But there is a risk of smaller profit margins as the crowded financial services sector becomes more competitive.

UK dividend shares: Diageo

The second pick I would consider for my portfolio of UK dividend shares has a lower yield than Legal & General, with the payout sitting at 2%. But it has raised its dividend annually for over three decades, with the latest increase being 4%.

The company in question is Diageo (LSE: DGE). It owns drinks brands such as Guinness and Johnnie Walker. Drinking is big business and last year, Diageo’s revenues came to £19.2bn. The collection of premium brands helps ensure customer loyalty and insulate revenues against the impact of inflation. I think the company’s brand portfolio is an asset that could help to generate profits for decades to come. That is why I would consider holding it in my portfolio in years to come.

But there are risks. Alcohol consumption is falling in markets such as the UK, where it’s down 16% since 2004. An ongoing decline in consumption could threaten Diageo’s profits.

Warren Buffett business model

The third of the UK dividend shares I would consider adding to my portfolio is instrument maker Judges Scientific (LSE: JDG).

The company’s business model reminds me of the approach taken by Warren Buffett in building Berkshire Hathaway. Judges buys specialist instrument manufacturers at a competitive price. It can then provide some benefits of centralised ownership, such as access to capital and group knowledge sharing. But it continues to leave the subsidiaries with substantial operational autonomy.

At just 0.8%, the Judges Scientific yield is the lowest among my trio of picks. But what attracts me to the idea of holding this share over coming  years is its track record of raising its dividend by a minimum of 10% annually. The dividend has doubled in the past four years. That’s no guarantee of future dividends, though. The company does face risks, for example travel restrictions hurt sales as they make it harder for engineers to install instruments internationally.

UK dividend shares I’d hold

There are some UK dividend shares I like but wouldn’t expect to hold over the course of many years. What makes these three different?

In short, I think each of them has a strong underlying business that could continue to benefit from strong demand for decades to come. While the yields vary, dividend increases over time could boost my future return based on today’s share price. Business trends and dividends can change, though, which is why I’d pick all three to diversify across different UK dividend shares.

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Christopher Ruane owns no shares in any company mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended Diageo and Judges Scientific and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). 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.

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