2 top stocks I’d buy with £1k for fat dividends

Jon Smith outlines two of the top stocks — in his opinion — for dividend income, with both having yields above 7% at the moment.

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Looking for ‘top stocks’ can be a fairly subjective process. Different attributes make a stock good in different investors’ opinions. For me, if a company pays out generous dividends, then it’s a top stock. With that in mind, here are two of the ideas I’d look to invest £1k in at the moment for some high passive income.

The start of a potential turnaround

The two top stocks I’m considering are both from the finance sector. These are Abrdn (LSE:ABDN) and CMC Markets (LSE:CMCX).

Abrdn (formerly known as Standard Life Aberdeen) is a savings and investment business. It has struggled in recent years to make a profit, which is one of the main reasons why the share price has tumbled. Over the past one year, the shares are down 31%.

The move lower has helped to increase the dividend yield. At the moment the yield sits at 7.02%. I’d be keen to buy now because I think the top income stock is nearing the bottom. Its turning point has already started, I believe, based on the 2021 results. For the first time since the business was merged in 2017, there was an increase in revenue. This 6% rise reflects a change in the wind, in my opinion, and helped to deliver a 47% increase in adjusted operating profit.

However, I do need to note that the company saw a net outflow of client funds of £3.2bn for the year. This needs to be stopped for 2022, as a smaller amount assets to be managed will result in lower fees earned.

A top stock with an eye-popping yield

CMC Markets does overlap Abrdn in some respects with its retail investment target market. However, the trading platform is geared more to short-term speculative financial bets. To this end, this stock performed exceptionally well during 2020, when retail trading took off.

However, the share price is down 49% over the past year, as lower market volatility in 2021 saw the full-year earnings outlook cut last summer. In a similar way to Abrdn, the slump has helped to boost the dividend yield. At the moment, the yield sits at 9.15%. But this has fallen recently due to a reduction in the interim dividend.

Yet I also believe that the company is seeing a turnaround. Last week the business released a trading update, highlighting the strong performance in its Q4. It noted that this period “was CMC’s strongest quarter of the year leaving net operating income at the top end of guidance at approximately £280m”.

The market volatility has clearly helped the business, to such an extent that in one quarter it can push figures to the top end of projections! Personally, I don’t see volatility easing off any time soon. Therefore, I think this could be a top stock for the rest of 2022.

On the basis of the current dividend yields on offer, I’m considering adding both stocks to my portfolio now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. 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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