3 UK dividend stocks to buy in October

Dividend stocks pay investors cash income for doing nothing. Here, Edward Sheldon highlights three dividend payers he likes as we start October.

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UK investors love dividend stocks and it’s not hard to see why. These stocks provide their shareholders with regular cash income for doing absolutely nothing. This week, I’ve been scanning the market for dividend stocks that look attractive at the moment. Here are three I’d buy as we start October.

A top UK dividend stock

One that strikes me as attractive right now is Tritax Big Box (LSE: BBOX). It’s a FTSE 250-listed real estate investment trust that lets out logistics warehouses to major retailers such as Amazon and Tesco. It currently offers a prospective yield of around 3.1%.

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The reason I’m bullish on BBOX is that it looks set to benefit from the growth of the e-commerce industry in the years ahead. In the company’s recent H1 results, BBOX said it was seeing “unprecedented demand for prime logistics space” on the back of UK e-commerce growth and that it’s “well placed to take advantage of the very favourable market conditions.”

One risk to consider here is that the company sometimes needs to raise more capital to support its growth (it did this recently). This can push its share price down in the short term.

I’m comfortable with this risk though. I think the long-term story here is very attractive.

A defensive dividend payer

Another dividend stock I’d buy right now is Sage (LSE: SGE). It’s a technology company that specialises in cloud-based accounting and payroll solutions. The prospective yield here is about 2.5%.

Sage has a lot of appeal from a dividend investing perspective, to my mind. For starters, the company’s quite ‘defensive’ due to the nature of its offering. Its services are a necessity for most businesses and once set up with the software, customers rarely switch to a competitor.

Secondly, it looks set to grow at a healthy rate in the years ahead as businesses undergo digital transformation. For the year ending 30 September 2022, analysts expect revenue growth of 4%.

Sage does face competition from a number of rivals such as Intuit and Xero and this is a risk to consider. If it fails to innovate, its rivals may steal market share. This could impact profits and dividends.

I think this risk is baked into the valuation though. Currently, Sage sports a forward-looking price-to-earnings (P/E) ratio of about 28, which is relatively low for a software company.

3.3% yield

Finally, I like the look of wealth manager St. James’s Place (LSE: STJ) at the moment. It currently offers a prospective dividend yield of about 3.3%.

St. James’s Place appears to have quite a lot of momentum right now. With Britons saving record amounts over lockdown, a ton of money is flowing into wealth management products. In the first half of the year, STJ attracted £9.2bn of net client investments. Meanwhile, it expects gross inflow growth of around 20% year-on-year for the second half of 2021. Looking further out, the group see high demand for its services as the Baby Boomer generation retires. 

One risk here is the threat of financial technology (FinTech). In the future, ‘robo-advisers’ could steal market share. Another risk is a fall in the markets. This would reduce the group’s income.

Overall however, I think this UK dividend stock offers an attractive risk/reward proposition right now.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Amazon, Sage Group, Xero, and Tritax Big Box REIT. The Motley Fool UK owns shares of and has recommended Amazon and Intuit. The Motley Fool UK has recommended Sage Group, Tesco, and Tritax Big Box REIT and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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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