Dividend stocks are well represented in my portfolio. These companies provide me with a regular, albeit not guaranteed, source of income.
But while we all know that dividends are not guaranteed, we’re also aware that many companies’ dividends are more reliable than share price growth.
Today I’m looking at big yields, and the UK is great place to look for that.
However, when investing for dividends, it pays to be wary of big yields. Sometimes they can reflect concerns about the company’s near-term prospects.
So, with that in mind, here are two stocks I’ve bought for big dividend returns.
There is some evidence to suggest that the housebuilding sector is fairing better than expected. In March, Liberum highlighted “surprisingly” strong demand and falling mortgage rates.
Vistry Group (LSE:VTY) is among my favourites in the sector. The stock offers a 6.5% dividend yield and it recently noted an improved private sales trend — nearly 20% — in the first 11 weeks of the current fiscal year.
That’s clearly a positive as the current financial conditions aren’t ideal for housebuilders. With wage growth coming in hot this week, there are concerns that interest rates may rise further, but in all likelihood, the Bank of England will lower central rates from H2.
This is good news for private sales.
But I like Vistry because its affordable housing, or ‘partnerships’, side of business provides resilience. It’s somewhat insulated from movements in the private market, and with the government’s own housing targets being missed, there should be more growth on this side of the business.
The stock is now down just 9% over a year, after rising 10% over the last month. Despite the recent rally, I think there’s further to go. That’s why I recently bought more of the stock.
Legal & General
The sector to suffer the most in March was financials, and Legal & General was among them. The stock is still trading below its March highs, and is down 8% over 12 months.
However, falling share prices mean higher yields. The financial services giant now offers shareholders a 7.7% dividend yield. That’s one of the biggest on the FTSE 100.
It’s also worth noting that the coverage is strong. The dividend coverage ratio (DCR) — a financial metric that measures the number of times a company can pay dividends to its shareholders — is 1.98. Anything around two is generally considered healthy.
It also boasts a record solvency ratio of 236%.
But I like this stock because it’s a stalwart of the financial sector, with a steady business. Moreover, it’s possibly the most exposed of its peers to the positive trends in bulk purchase annuity.
I’m a little concerned about the performance of its investment arm. LGIM saw operating profit fall to £340m from £422m over the 2022. That’s clearly not great, and investors will want to see an improvement in 2023 — March’s correction may have created some challenges.
Nonetheless, it’s a stock I’ve been topping up on.