Dividend stocks can play a valuable role in an investment portfolio. With such shares, one has two potential sources of return (capital gains and income).
Here, I’m going to highlight two UK-listed dividend stocks that I’ve got my eye on in October. I think these shares are worth a closer look right now.
Super dividend growth track record
First up is Coca-Cola HBC (LSE: CCH). It’s a major bottler of Coca-Cola products. At present, it has a yield of around 3.6%.
There are a number of reasons I’m drawn to this stock.
One is that the company has put together an excellent dividend growth track record. Since 2013 (when it came to the market), it has increased its payout every year.
Another is that it has a dividend coverage ratio (a measure of dividend security) of a little over two. This indicates that the dividend is unlikely to be cut in the near term.
Looking beyond the dividend here, I like the fact that the company has several long-term growth drivers. The growth of the travel industry is one — who doesn’t like an ice-cold Coke on holiday? Rising wealth in emerging markets is another.
One risk to consider is the future impact of weight-loss drugs such as Wegovy. Concerns over these drugs, and their ability to reduce the desire to consume snack foods, have hit the Coca-Cola brabd’s owner, Coca-Cola Co significantly recently. This is an issue to keep an eye on.
Overall, however, I see a lot of appeal. The shares currently trade on a forward-looking price-to-earnings (P/E) ratio of about 12 – a very reasonable valuation.
Trading at a discount to the market
The second stock I want to highlight is GSK (LSE: GSK). It’s a healthcare company that operates in two main areas – medicines and vaccines. Its yield is currently around 3.8%.
This stock doesn’t have the dividend growth track record that Coca-Cola HBC has. Recently, the company lowered its payout to strengthen its financials.
On the plus side, however, its yield is a little higher.
Additionally, the stock is cheaper from a valuation perspective. Currently, GSK has a forward-looking P/E ratio of around 10 (versus the FTSE 100 median of 12.3). I see quite a bit of value on offer at that multiple.
This is another stock with a number of long-term growth drivers. Global population growth is one. This should increase demand for medicines and vaccines. Improving healthcare standards in emerging market countries such as China and India is another.
Now, a risk here is Zantac litigation. This is creating a fair bit of uncertainty at the moment as GSK could be on the hook for billions in damages if a link is found between the product and cancer. This is one reason the stock’s valuation is quite low right now.
All things considered, however, I think the risk/reward proposition is quite attractive at the moment.
