As markets settle into a busy trading season, I’m considering what UK dividend shares I might add to my portfolio in October to boost my passive income. Here are four ideas I would consider.
Two decade dividend raiser
The tobacco stalwart British American Tobacco has been raising its dividend annually for more than two decades. That points to the strength of its portfolio of brands including iconic smokes such as Lucky Strikes. These brands give the company pricing power even in an inflationary environment. Given that a lot of smokers are giving up the habit, that can help the company offset volume declines in some markets with pricing increases.
There’s more to the company than just cigarettes, though. A key risk is declining cigarette usage, which could hurt revenues and profits. BAT has responded to that through developing its next generation portfolio of products in areas such as vaping. That could help arrest revenue decline. In its interim results, reported revenue slipped less than 1% compared to the prior year. A changed product mix does risk lower profitability. But for now, with its 8% yield, I would consider adding more BAT to my portfolio in October.
Financial services giant
Many British investors will be familiar with financial services provider Legal & General thanks to its iconic multi-coloured umbrella logo. That brand familiarity is good for the business. It helps attract customers without the level of spending required by new market entrants like fintechs.
As an investor, I also appreciate the company’s progressive dividend policy. It currently yields 6.4%. Unlike some other insurers, it did not use the pandemic as cover for a dividend cut. The business has a long-term growth record and I think its proven business strategy could help support planned future dividend increases. But – as any insurer worth its salt knows – there is always risk. Any slip in underwriting standards, or price competition in insurance, could eat into L&G’s profits.
UK dividend shares in the utilities sector
A lot of investors think utilities make good picks among UK dividend shares, due to steady demand and regulated prices. That isn’t always the case: the pandemic shifted working patterns, which has impacts for where and when people need to access power. Realigning the power network to those changed needs could require more capital expenditure. That is a risk facing power network infrastructure specialist National Grid.
Nonetheless, I would consider adding the 5.5% yielding company to my portfolio in October. A busy month in the stock market could see turbulence. Utility stocks are sometimes seen as defensive. With power demand likely to stay strong for decades, I think National Grid offers an attractive pick for my portfolio among UK dividend shares in October.
Beaten down consumer goods giant
Heading into October, consumer goods giant Reckitt continues to look beaten down. While the FTSE 100 index has increased 19% over the past year, constituent share Reckitt has slumped 23%. It has struggled with a problematic infant formula business and cost inflation.
Both challenges risk continuing to dog the company. But I see its global portfolio of brands as a strong basis for long-term performance. With a dividend yield of 3%, the company is one of the UK dividend shares I think may also offer capital growth potential. Third-quarter results on 26 October could trigger investors to rerate Reckitt shares.
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Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco, National Grid, and Reckitt plc. 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.