Best British income stocks for September

We asked our freelance writers to share the top income stocks they’d buy in September, which comprised mostly energy and financial businesses.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Every month, we ask our freelance writer investors to share their top ideas for income stock picks with you — here’s what they said for September!

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

NextEnergy Solar Fund  

What it does: NextEnergy Solar Fund has invested in more than 100 solar power assets spanning the UK and Italy.

By Royston Wild. Renewable energy stock NextEnergy Solar Fund (LSE: NESF) hasn’t been listed on the London Stock Exchange for a considerable period of time. 

But since its IPO in 2014 it’s shown the hallmarks of a true Dividend Aristocrat. It’s lifted shareholder payments each year since then. Last year it raised the full-year reward 2% year-on-year to 7.16p per share. 

I think it’s a great stock to buy for reliable dividend growth. Electricity is of course an essential commodity today, so demand for power sourced from NextEnergy’s assets should remain strong at all points of the economic cycle. This gives added strength for a business seeking to increase dividends over the long term. 

I think NextEnergy’s focus on green energy gives it the edge over other electricity-producers, too. This is a highly lucrative industry as the transition away from fossil fuels heats up. Though remember that it’s also one where corporate profits can suffer during cloudy weather when energy generation can slump.

Today, this renewable energy income stock carries a 6.4% forward dividend yield.  

Royston Wild does not own shares in NextEnergy Solar Fund. 

Central Asia Metals

What it does: Central Asia Metals is an AIM-listed copper, zinc and lead production and exploration company, with operations in Kazakhstan and North Macedonia

By Paul Summers. With UK inflation poised to hit a staggering 18% next year as energy prices soar (again), I’m attracted to the dividends on offer from miner Central Asia Metals (LSE: CAML). A yield of 8.2% at the time of writing won’t be enough to offset the pain ahead but it certainly isn’t to be sniffed at. What’s more, this payout looks set to be covered twice by profit according to analysts.

Naturally, nothing is a given. Metal prices are notoriously volatile, making the near-term earnings outlook distinctly foggy for any company operating in this space. Nevertheless, the likely huge demand for copper going forward as the renewable energy revolution steps up a gear could prove a boon to this AIM-listed firm.

The income stock also appears very reasonably priced compared to sector peers, at just six times earnings. 

Paul Summers has no position in Central Asia Metals

Lloyds Banking Group

What it does: Lloyds is one of the UK’s largest financial services providers and currently the largest mortgage lender in the country.

By Dylan Hood. On the whole, rising interest rates are bad news for stock markets. However, one sector that tends to be robust during these times are banks. This is because as rates rise, they can charge more on their loans to customers. Although Lloyds (LSE:LLOY) shares are down 11% year to date, I think they could be a solid buy for my portfolio.

Firstly, they have a comfortable 4.8% dividend yield. This is comfortably above the FTSE 100 average yield of 3.9%. With inflation on the rise, reaching 10.1% in July, passive income is a great shield for my portfolio. In addition to this, currently trading at 44p, Lloyds shares have a cheap looking 7.3 price to earnings ratio. This is well below competitors HSBC and NatWest who both trade on P/E ratios of just under 10.

So, with a low valuation, meaty dividend, and favourable lending outlook, I think Lloyds shares could be a great buy for my portfolio for September.

Dylan Hood does not own shares in Lloyds

St. James’s Place

What it does: St. James’s Place is a leading provider of financial planning and wealth management services in the UK.

By Edward Sheldon, CFA. My top income stock for September is St. James’s Place (LSE: STJ). It’s forecast to pay out a dividend of 55p per share for 2022, which equates to a yield of nearly 5% at present.

One reason I’m bullish on St. James’s Place right now is that the financial environment is rather complex. High inflation, rising interest rates, stock market volatility, and falling bond prices all present challenges for those looking to save and invest for their future. This should play into the wealth manager’s hands. In this environment, its advisers can add value for clients, and help them stay on track.

Another reason is that the company is raising its dividend. For the first half of 2022, the company declared a payout of 15.59p per share, up 35% year on year.

It’s worth pointing out that if global stock markets continue to fall, the company’s profits could take a hit.

With the stock currently well below its 52-week highs, however, I think a lot of this risk is already priced in.

Edward Sheldon has no position in St. James’s Place.

Greencoat UK Wind

What it does: Greencoat owns a collection of wind farms scattered across the UK, generating clean electricity to power the nation’s homes.

By Zaven Boyrazian. With gas prices sending energy bills through the roof, alternative renewable energy solutions are rising in demand. Today only around 29% of electricity generated in the UK originates from renewable energy sources. But that’s considerably higher than 5% in 2012.

This continued shift away from fossil fuels has created lucrative opportunities for companies like Greencoat UK Wind (LSE:UKW). The business owns a portfolio of on- and off-shore wind farms that generate clean electricity.

Being a wind energy business, its revenue stream and earnings can be quite lumpy. Not to mention the regulatory energy price caps eliminate any form of pricing power.

But with operating margins well above 90%, any reduction in price caps is unlikely to compromise this business, I feel. And with most of the proceeds returned to shareholders in an inflation-adjusted dividend, Greencoat looks like an excellent income stock to own in my eyes.

Zaven Boyrazian owns shares in Greencoat UK Wind

Legal & General  

What it does: Legal & General is one of the UK’s largest financial and insurance firms with a focus on four key areas. 

By Charlie Keough. My top British income stock for September is Legal & General (LSE: LGEN]. With its share price taking a hit this year, this has pushed the stock’s dividend up to an attractive yield of around 9%.  

What I also like about L&G is the long-term dividend plan it set out back in 2020. This was part of a wider five-year ambitions programme. And within this, it has targeted a cumulative dividend ambition of £5.6bn-£5.9bn by 2024. In its latest update, it highlighted it was on track to achieve this.  

The firm has also managed to grow its cash levels since last year, which gives this dividend programme a platform to build up.  

The business may see investors batten down the hatches in the months ahead. And this will likely dent revenue. 

However, with inflation continuing to rise, I think this source of passive income could prove valuable in the months and years ahead. 

Charlie Keough does not own shares in Legal & General 

Lloyds

What it does: Lloyds is one of Britain’s biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans.

By John Choong. According to analysts, inflation is now expected to peak at 18% in January. With interest rates still lagging behind inflation, the Bank of England will have to continue raising rates. Given that Lloyds (LSE: LLOY) earns its income from the difference in the cost of borrowing and lending, I expect its earnings to continue upwards; and with that, its dividends.

Although house prices are expected to decline in the near future, I hold the view that the increase in mortgage rates should offset any decreases in property valuations. Furthermore, with an excellent balance sheet, Lloyds doesn’t need to increase its savings rate to bring in more cash, thus allowing it to increase its profits.

So, with a low price-to-earnings (P/E) ratio of 7, and a price target of £0.64, I think Lloyds shares are an excellent pick as a defensive position for my portfolio. And what’s most lucrative is its dividend yield of 4.8%, which is expected to increase along with its margins.

John Choong has positions in Lloyds.

Persimmon

What it does: Persimmon is a housebuilder focussed on the UK market.

By Christopher Ruane. Some of the yields currently on offer in the London market are hard to get my head around. Take housebuilder Persimmon (LSE: PSN) for example. Its dividend yield is almost 16%. For a FTSE 100 member, that is unusually high.

Clearly many investors doubt that the company can sustain its payout and have pushed the share price down accordingly. Although the housing market still looks fairly strong, there is undoubtedly a risk that higher interest rates and a worsening economy could push down selling prices at some point. Persimmon raised its average selling price in the first half, although volumes slipped. It continues to have a healthily profitable business model.

With its thin cover, the dividend looks vulnerable in a downturn. But even if it was halved, it would still be almost 8%. Recognising the risk, I am tempted to add this income stock to my portfolio.

Christopher Ruane does not own shares in Persimmon.

Forterra

What it does: the company manufactures building products from clay and concrete. These include bricks, blocks, and paving.

By Stephen Wright. I think that Forterra (LSE:FORT) is a really interesting income stock. At current prices, it has a dividend yield of around 4.2%.

The company makes the ubiquitous London Brick, which has been used in around 25% of the UK’s housing. This is significant because it means that Forterra’s products are likely to be used in extension projects on those buildings.

It’s natural to think that bricks are something of a commodity, but this isn’t true. Forterra has shown an ability to increase prices to its customers, which indicates that its products are differentiated from those of its competitors.

I also believe that the stock is cheap. Forterra’s share price implies a price-to-earnings (P/E) ratio of around 10 and the company has more cash than debt. This makes it look to me like a strong business at a good price.

Stephen Wright does not own shares in Forterra.

National Grid

What it does: National Grid is an energy company, operating in the UK and eastern US. It provides both electricity and gas.

By Andrew Woods. The National Grid (LSE:NG) share price has fallen just 3% in the past three months. For the year ended March, the firm paid a dividend of 50.97p per share. At current levels, this constitutes a dividend yield of 4.49%. As such, it’s my income stock for September.

The company reported a 107% rise in pre-tax profit, totalling £3.4bn, for the 12 months to March. Furthermore, its dividend payment was 3.7% greater than in 2021. Much of this was down to higher electricity transmission as energy costs spiralled following the pandemic and the war in Ukraine.

One concern, however, is that profit margins may be tighter in the coming months. This could be due to the higher cost of securing energy sources, like natural gas.

Despite this, the business has operating cash flow of £5.3bn, and this may allow the company to engage in controlled expansion of its operations within the UK and abroad.

Andrew Woods has no position in National Grid.

Vodafone

What it does: Vodafone is a leading European mobile and broadband operator. In Africa, it runs mobile and payment services.

By Roland Head. My top dividend share pick is Vodafone Group (LSE: VOD). This well-known telecoms operator offers a 6.5% dividend yield and an improving outlook.

Vodafone’s latest trading update showed growth in Europe and continued expansion in Africa, where the company now has 186m mobile customers.

Currently, fewer than half of Vodafone’s African customers use mobile data or the group’s M-Pesa mobile money service. However, I expect the number of people using these higher-value services to continue rising, supporting long-term growth.

The main challenge the company faces in Europe is strong competition in mature markets. This has caused growth to slow in recent years.

However, changes are underway to increase network utilisation. Cost savings should also come as Vodafone gradually switches off its 3G services.

In the meantime, profit margins are improving, and cash generation remains good. This should support the dividend. I see Vodafone as a dividend buy in September.

Roland Head does not own shares in Vodafone.

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.

The Motley Fool UK has recommended Greencoat UK Wind, HSBC Holdings, and Lloyds Banking Group. 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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