For July, I anticipate most of the the stock market’s themes from June being carried over. The main ones on my agenda are dealing with high inflation and generating income to help ease the cost-of-living crisis that seems to be sticking around. As a result, I’m trying to find more stocks to buy that offer me dividends. Here are a selection that I’m thinking about buying at the moment.
Dividends that don’t go up in smoke
First up, I’m going to head to tobacco brands. This includes stocks like Imperial Brands and British American Tobacco. The current dividend yields on these two are 7.41% and 6.01%, respectively.
I see it as no-brainer buys due to the ability for the sector to generate profits irrespective of the performance of the economy. Obviously, a booming economy would be even better for business. But if we do see a slowdown over the summer, tobacco companies should still garner demand from customers. The nature of the products means that people will still buy cigarettes or vapes even when income is tight.
The investment towards new generation products means that although the stocks should be good buys for right now, they should also offer me sustainable income for years to come as consumer tastes change.
As a risk, the sector has strong activists against it, with ESG investors also shunning the possibility of owning stocks from this area. This could cause reputational damage to the companies in the future.
Stocks to buy from financial services
In contrast, I don’t think I’ll have as many ethical arguments to contend with when eyeing up dividend payers from financial services.
I’ve been banging the drum for a while now on why I believe interest rates are going to continue to rise for the rest of this year. From the current rate of 1.25%, I think the base rate could be at 2% by the end of the year as the Bank of England is forced to push the rate higher to get inflation under control.
The main sector that will benefit from this is the large banks. The higher the base rate, the more of a buffer the bank can build into the rate paid on deposits and charged on loans. For example, even though the base rate is 1.25%, I’m still picking up just 0.1% on my cash account.
Not all banks offer me good income via dividends at the moment. Two that catch my eye in this regard are NatWest Group with a yield of 4.75% and Barclays with a yield of 3.81%. However, as we go through the rest of the year, I’d expect the dividend per share to increase as profits tick up.
My concern when buying any bank stock for dividends is the role of the regulators. The FCA and PRA have the ability to tell a bank to stop paying a dividend, such as during the pandemic. This outside influence could hamper me in the future.