Dividend stocks are stocks you buy because the company they represent pays out a small sum to its shareholders as profit. This can happen once, twice, or even four times a year and the percentages are often much better than what one can get leaving your money in a bank. However, unlike bank interest, dividends are not guaranteed.
Here are two of my top picks from the FTSE 350.
Unilever (LSE: ULVR) is a British multinational consumer goods company that owns or partially owns brands such as Ben & Jerries, Graze, and Dollar Shave Club. It currently trades at a fairly high 3,825p but has a very reasonable price-to-earnings ratio of 22. Unilever’s dividend yield currently sits at a mid-range 3.90%. Most importantly in my view, it has paid a dividend every single quarter since 2006.
If I make a quick online search, I can easily find the companies that, right now, are paying the highest dividends on the market. But high yields are often unsustainable and might not last more than a year or so. Of course, there is still no guarantee that Unilever will pay a dividend next year, or a single year after that. But with a long track record of paying shareholders, I feel confident that I can rely on them over the coming years.
The Unilever share price has been unusually volatile lately, due in large part to the pandemic. My biggest concern, though, is the sheer amount of debt it has taken on since 2018. The company, which has yearly revenues averaging $50bn, now owes over $30bn.
I may wait until the share price comes down a little more, but after that I will be adding shares to my portfolio.
The Internet being what it is, I couldn’t help but try to find the ‘best value’ high yield dividend stock. I did this by looking at the current yield, and whether that company has a good ‘moat’ or aspect to its business that protects it from market ups and downs.
Imperial Brands (LSE: IMB) has both of these. This British tobacco company has not made a dividend payment lower then than 10p since May 1999 and currently pays a staggering 8.89% yield.
Tobacco users often have a preferred brand, and sales usually go up in difficult times. That is an excellent moat. It is also why the stock poses ethical concerns for some investors.
Imperial currently trades for 1,553p and has a very enviable price-to-earnings ratio of 5.30, but the value of the shares has been falling fast since 2016. This information gives away the biggest risk with investing in Imperial. The number of tobacco users is falling, and the people who do still smoke, smoke less than previous generations. This is good for our health, but bad for Imperial’s profits.
Personally, I think the dividend is worth the risk, at least in the medium term.
The UK has one of the lowest smoking rates of any country in the world, but Europe continues to have high rates of tobacco consumption. In 2017, 28% of people in France enjoyed some form of tobacco product. That number reaches 40% in Greece.
I fully expect the Imperial share price to continue to fall, so I’m going to wait a couple of months first before adding it to my portfolio.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
James Reynolds does not have a position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Unilever. 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.