When I am looking for UK dividend shares to buy for my portfolio, I like to focus on the market’s highest-quality companies.
With that in mind, here are three top-quality stocks that I would buy today for their dividend potential.
Attractive dividend shares
The first company on my list is the homebuilder Barratt Developments (LSE: BDEV). At the time of writing, shares in this business support a dividend yield of 6.4%. The stock is also trading at a forward price-to-earnings (P/E) multiple of 8.4.
What I like about this company is that it is producing a product (homes) in a severely undersupplied market. This means demand is high, and prices are buoyant. Thanks to this Goldilocks-style environment, Barratt is highly cash generative. It ended its latest financial year with cash on the balance sheet of £1.3bn. I think this is more than enough to pay a dividend to investors and continue to reinvest for growth.
These are the primary reasons why I would acquire the stock for my portfolio today.
But some challenges it could face as we advance include cost inflation, which would impact profit margins. A housing market crash would also reduce demand and selling prices for homes.
Shares to buy for growth
High energy prices have reduced the number of energy offers on the market, and FCA regulation has reduced the need for consumers to shop around for new insurance deals. According to analysts, as a result of these pressures, Moneysupermarket’s earnings per share could drop by nearly 10% this year.
These pressures could continue to harm the business. However, I am attracted to the stock’s 5.3% dividend yield. This is covered by earnings per share and supported by the company’s strong balance sheet. Like Barrett, Moneysupermarket has a net cash balance sheet position.
I would buy the stock as a contrarian income investment, but I realise the company might not be suitable for all investors due to the risks outlined above.
The final stock I would buy for my portfolio of dividend shares is warehouse owner-operator Tritax Big Box Reit (LSE: BBOX). With a dividend yield of 3% at the time of writing, this stock offers the lowest yield of all the organisations profiled in this piece. Nevertheless, I am encouraged by the company’s overall value creation.
Over the past six years, book value per share has grown from 121p to 189p as demand for warehouse space has surged. Tritax has been able to meet this rising demand by acquiring and building new premises.
I think demand for warehouse space will continue to expand as the e-commerce market grows. As such, I would acquire Tritax for both its dividend and capital growth.
Risks the company may have to overcome in the future include a property market slump and higher interest rates, making its debt more expensive.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com and Tritax Big Box REIT. 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.