Every month, we ask our freelance writer investors to share their top income stock ideas with you — here’s what they said for June!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
What it does: BT is a multinational telecommunications provider, operating in over 180 countries across the globe.
By Dylan Hood. Inflation is creeping up across the globe, and as such, many high-growth stocks are starting to fall back from their lofty valuations. Value stocks like BT (LSE:BT-A) are performing well, as they have the power to control their pricing power in line with inflation. BT also has an abundance of well-established infrastructure, which means its fixed costs won’t increase much as prices start to rise.
In addition to this, BT has a healthy dividend yield of just below 4%. This is above the FTSE 100 average of 3.6%, and I expect this dividend to consistently remain high in the coming months. This is due to the strong consumer base that BT already has, and the new projects it has in the pipeline to drastically upgrade its network.
Dylan Hood does not own shares in BT.
What it does: Reckitt is a leading consumer goods company that is focused on health and hygiene products.
The first is that the company offers a healthy yield. At present, analysts expect Reckitt to pay out 176p per share in dividends for 2022. That puts the yield at near 3%.
The second reason I like Reckitt is that the company is relatively recession-proof. Its products, which include Nurofen painkillers, Dettol wipes, and Strepsils lozenges, tend to be purchased by consumers no matter what’s happening in the global economy. This is a valuable attribute in the current economic environment, to my mind.
Finally, City analysts are currently upgrading their earnings estimates here. This broker activity should support the share price.
Of course, there are risks to consider. One is the company’s valuation, which is higher than the average FTSE 100 valuation. Another in inflation. All things considered though, I see a lot of appeal in this income stock right now.
Edward Sheldon owns shares in Reckitt.
Greencoat UK Wind
What it does: Greencoat UK Wind is the UK’s largest pureplay investment fund specialising in renewable wind power infrastructure.
By Zaven Boyrazian. With oil prices shooting through the roof, the renewable energy sector has lost a lot of attention. Yet while there is plenty of struggling, unprofitable operations in this industry, Greencoat UK Wind (LSE:UKW) is the exception.
The real-estate investment trust invests in on- and off-shore wind farms scattered across the UK, allowing investors to own part of this infrastructure. All of the clean electricity generated is sold wholesale to the country’s largest energy companies, including Centrica and SSE. And the proceeds are returned to shareholders through an impressive 4.9% dividend yield.
With skyrocketing energy prices, the firm looks primed to generate copious amounts of passive income for the rest of 2022. While the regulatory price caps on energy eliminate pricing power, the group’s 86% net profit margins can easily absorb any adverse regulatory adjustments.
That’s why I believe this could be one of the best additions to my income portfolio today.
Zaven Boyrazian does not own shares in Greencoat UK Wind, Centrica or SSE.
What it does: A residential developer, operating from 23 regional businesses across the UK
By Paul Summers: As a rule of thumb, the higher the dividend, the more suspicious one needs to be about whether it will get paid. Even so, I’m struggling to ignore the potential income on offer from one of the UK’s biggest housebuilders: Taylor Wimpey (LSE: TW).
Right now, the FTSE 100 member yields 7.4% based on analyst projections. That’s among the highest in the index. Positively, Taylor Wimpey’s record of growing payouts is also pretty stellar.
One concern is that the housing market could slow as interest rate rises begin to bite. Then again, I’d say a lot of this is already baked in the share price. Having tumbled over 25% in value in 2022 so far, Taylor Wimpey’s shares trade at less than seven times forecast earnings.
The need for me to remain diversified is as relevant as ever but I’d say the risk/reward trade-off looks attractive here.
Paul Summers does not own shares in Taylor Wimpey.
What it does: Severn Trent predominantly provides water and waste services to 4.6m customers under the businesses Severn Trent Water and Hafren Dyfrdwy.
By Andrew Mackie: 2022 proved to be a year of recovery for Severn Trent (LSE:SVT). Its regulated water business saw turnover jump 6.5% to £1.8bn driven primarily by patterns of usage amongst business customers returning to normal.
In the present backdrop of high inflation and slowing economic growth, I am always on the look-out for businesses that can provide a steady stream of earnings growth and dividend returns. Severn Trent definitely ticks the boxes in this respect. It has a progressive dividend policy, which will grow by at least CPIH (consumer price index together with housing costs).
Two major risks are 1) a large, and growing, net debt position with 27% index-linked and 2) increasing operating costs particularly in energy and chemicals. However, on the latter point, the business has a natural economic hedge given that it generates 50% of its total power consumption in-house.
With the share price exhibiting some weakness as of late, I see this as an attractive entry point to a purely defensive play.
Andrew Mackie does not own shares in Severn Trent.
What it does: Rio Tinto explores, mines, and processes mineral resources worldwide. The firm offers aluminium, copper, and gold among other metals in its large portfolio.
By John Choong Having had a volatile first quarter, Rio Tinto (LSE: RIO) — the second biggest iron ore manufacturer in the world — is riding the wave of rising iron ore prices yet again, as it’s up 20% this year.
After the firm reported record-breaking numbers in its last financial year, it declared an extraordinary dividend of £3.07 per share, with a special dividend of £0.46 as well. While these numbers are unlikely to continue in the next dividend declaration, I believe that the Rio Tinto share price still has plenty of growth in the medium term.
With China being its largest customer, Rio’s top line undoubtedly suffered when China imposed a number of city-wide lockdowns, stifling manufacturing growth. However, China just announced a further easing of curbs in Shanghai and Beijing recently. This should positively impact PMI figures and bring much needed relief to Rio’s order books. As such, I expect its share price to continue growing with high dividend payments to continue.
John Choong has no position in Rio Tinto
IG Group Holdings
What it does: IG Group operates technology, platforms, products and exchanges for traders and investors worldwide.
By Kevin Godbold. In March 2022, IG Group Holdings (LSE: IGG) released an upbeat third-quarter revenue report. Client numbers rose just over 30% year on year to an all-time high against a “challenging” comparative period that included the ‘meme stock’ craze.
IG thrives on market volatility, which helps to attract clients and encourages them to trade. Meanwhile, near 716p, the share price is around 18% lower than a year ago. The stock market could be discounting the possibility of lower earnings ahead. But I reckon the healthy customer base will likely drive IG’s profits through many periods of market volatility in coming months and years.
IG operates in a sector with regulatory risks. But the stock looks good value to me, and the business has strong multi-year cash flow and dividend records. Although analysts’ estimates can change, the forward-looking dividend yield is just over 7% for the trading year to May 2023.
Kevin Godbold owns shares in IG Group Holdings.
B&M European Value Retail
What it does: B&M European Value Retail runs discount variety retail stores in the UK and France. The group’s brands are B&M, Heron and Babou.
I think this sell-off has gone too far. This business has always been much more profitable than regular supermarkets and enjoys strong cash generation.
Despite these attractions, B&M shares are currently trading on just nine times trailing earnings, with a 4.3% dividend yield.
There are some risks, of course. B&M has expanded rapidly, and CEO Simon Arora is now planning to retire.
Mr Arora has led the business with his brother Bobby since acquiring it in 2004. There’s no guarantee that B&M’s next CEO, current finance boss Alex Russo, can maintain this success.
Personally, I think B&M’s proven business model will stand the test of time. I think the shares look like a good income buy today.
Roland Head does not own shares in B&M European Value Retail.
What it does: BAE Systems is an aerospace and arms manufacturer that operates all around the world and is the largest defence contractor in Europe.
By Andrew Woods. Over the past two years, BAE Systems (LSE:BA.) has had dividend yields of 7.7% and 4.6%. This equated to payments of 37.5p and 25.1p in 2020 and 2021, respectively. With a significant order book following escalations in global conflict, it is conceivable that the 2022 dividend could be greater.
The company has not been immune from problems caused by the pandemic, however. It has faced supply chain issues for the raw materials used in its products, like steel. Despite this, the firm did not change its full-year guidance and expects sales to increase by between 2% and 4%.
The war in Ukraine has also prompted a rethink in many countries on the size of defence budgets. If governments choose to increase defence spending, this could be good news for BAE Systems. As the seventh-largest defence contractor in the world, it is likely that many nations will turn to the company for supplies of weapons and aircraft.
Andrew Woods does not own shares in BAE Systems.
What it does: Aviva is a multiline insurer focused on core markets in the UK, Ireland and Canada.
By G A Chester. I was hugely impressed by Amanda Blanc when she joined Aviva (LSE: AV) as chief executive two years ago. Her first presentation was assured and waffle-free. She set out the company’s strengths and weaknesses, and a clear, no-nonsense strategy for delivering value for shareholders.
She’s done exactly what she said. Businesses in disparate geographies have been sold. A big chunk of the proceeds have been returned to shareholders. And the group is now focused on its core markets in the UK, Ireland and Canada where it has strong leadership positions.
The board has set a clear dividend policy. Distributions of around £870m (31p a share) for 2022 and £915m (32.5p) a share for 2023, followed by annual low-to-mid single digit growth.
Dividends are never guaranteed, but Blanc at the helm and a share price in the 430p region, yields of 7.2% this year, rising to 7.6% next year, make Aviva my top income stock for June.
G A Chester does not own shares in Aviva
Legal & General
What it does: Legal & General is an insurance, pensions and financial services provider. It is focussed on the UK market.
By Christopher Ruane. The financial services powerhouse Legal & General (LSE:LGEN) has a number of things going for it. Long term, I think demand for financial services should be robust. The large sums involved mean that the potential profits are big. Legal & General’s long-established track record and iconic logo help it bring in new customers and hang onto existing ones.
That has translated into an impressive dividend record. Dividends are not guaranteed and the company faces risks, such as a change to UK insurance renewal pricing rules hurting sales volumes or profit margins.
But the dividend is comfortably covered and the company has set out its aim of increasing it in coming years. Although that cannot be guaranteed, the progressive dividend policy could mean growing passive income in coming years. With a 6.9% yield, I see it as an attractive income pick for my portfolio.
Christopher Ruane does not own shares in Legal & General.