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Dividend shares: 3 stocks to buy

When I’m looking for dividend shares to include in my portfolio, I like to focus on what I believe are the best stocks to buy on the market.

What I mean by this is that I try not to get distracted by high dividend yields. Instead, I’m looking for high-quality companies that have the potential to pay a dividend year after year.

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So I think these three companies fit well into this basket and are therefore the best dividend stocks to buy for my portfolio. 

The best dividend shares

The first on my list is the Coca-Cola bottler, Coca-Cola HBC (LSE: CCH). I like this enterprise because its business model is relatively straightforward. Its primary service is bottling Coke under a service agreement with the larger US-based group. 

With Coke taking care of the marketing, this company can therefore focus on doing what it does best—bottling the products as efficiently as possible. Under the long-term bottling service agreement, the group’s revenues are relatively predictable, to a certain extent.

This business model means Coca-Cola doesn’t have to spend heavily on promotions and product development. This leaves scope for substantial cash returns. The stock currently offers a dividend yield of 2.2%. Management has also earmarked cash for share repurchases in the past. 

This is why I’d buy the company for my portfolio of dividend shares. Risks the business may face as we advance include higher costs, which could eat into its profit margins, and a restructuring of the agreement with Coke.

Stocks to buy for income and growth 

As well as Coca-Cola HBC, I’d also acquire Sage Group (LSE: SGE) and Airtel Africa (LSE: AAF) for my portfolio of dividends stocks. 

As well as being top dividend shares, these companies are growth champions. Accounting software provider Sage has increased its dividend every year for the past two decades. The firm is also one of the UK’s largest technology businesses.

It’s currently in the middle of a business model shift. Management is moving away from a one-off sales model to a subscription-based service. Subscription revenue is more predictable, and the smaller upfront payment is more accessible for consumers. The shift could underpin further dividend growth in the years ahead. The stock currently supports a dividend yield of 2.3%. 

Meanwhile, Airtel is one of Africa’s largest mobile telecommunications companies. It’s investing heavily in digital payments, a booming area of the market. I’m incredibly excited about the company’s prospects. The African telecommunications market is still relatively underdeveloped, but the region is rapidly catching up with the West.

What’s more, much of Africa is still underbanked, and these regions are skipping banks and going straight to digital payments. The same is true of internet data. Rather than buying laptops and PCs, many consumers are going straight to high-tech mobile phones.

As the industry continues to grow, I expect Airtel will be able to reap the benefits. That’s why I’d buy the company and its 4% dividend yield, and rate it as one of the best stocks to buy. 

One risk both of these dividend shares face is competition. The African telecoms and global software markets are incredibly competitive. Both of these enterprises could face challenges from larger peers. They may have to spend more money to fend off rivals, which would leave less cash for distribution to investors.

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc and Sage Group. 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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