Every month, we ask our freelance writers to share their top ideas for dividend stocks to buy with you — here’s what they said for December!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
Aviva
What it does: Aviva is a FTSE 100-listed British multinational insurance and pensions provider
By John Fieldsend. Aviva (LSE: AV.) continues to look like one of the FTSE 100’s best dividend stocks.
As I write, the dividend yield stands at 7.43% which is a tidy amount all on its own. That yield is higher than the historical total return for Footsie stocks. I’d be very happy to bank on it year after year, but the forecast is set to increase over the next two years as well.
In terms of downsides, I will mention that the shares have risen around 15% in the last month. It seems I wasn’t the only one who spotted an attractive yielding stock and investors have been rushing in and pushing up that share price. If I bought in today, I’ve likely missed out on the best deal I could have got here.
Still, I think that insurance, with its defensive qualities, is a smart play for upcoming economic underperformance. People don’t tend to cut their insurance products even when times are bad. I’m happy with the shares I own and may buy more soon.
John Fieldsend owns shares in Aviva.
Pennon Group
What it does: Pennon is a water utility company based in the UK, primarily operating in the South West.
By Jon Smith. The current dividend yield for Pennon Group (LSE:PNN) is 5.65%. Part of the rise in the yield over the past year has been the 23% fall in the share price.
This hit was due to higher interest rates causing the cost of servicing debt to increase. The summer drought also weighed heavy on the company. I accept that the risk of weather is factor that I can’t control and could be a risk going forward.
However, I think interest rates have peaked and could fall next year. Therefore, this should act to lower costs and helped to boost overall profitability for the utility firm. Not only could this provide more retained earnings to pay out as dividends, but it can be used towards further capital expenditure investment.
Pennon Group is also a defensive stock, which should help an income investor as we head into an uncertain 2024.
Jon Smith does not own shares in Pennon Group.
Vodafone
What it does: Vodafone is a telecoms company offering a range of services across multiple European and African markets.
By Christopher Ruane. What does it say when a FTSE 100 share yields 11%?
At first glance, such a yield seems very tasty from any share let alone a member of the blue-chip index of leading British companies.
On the other hand, FTSE 100 shares with a double digit yield are a rare species. There is a risk that such a share could be a yield trap.
What about Vodafone (LSE: VOD)?
On the downside, it has sizeable debt, has been selling off businesses and has to contend with high capital expenditure requirements that are common in its industry.
Set against that, net debt has fallen by 20% in the past year. Selling businesses has raised cash that could help to support the generous shareholder payout. As for high capex requirements, Vodafone has decades of experience in its sector.
I think the company could benefit from ongoing demand for mobile and data services as well as fast-growing areas like mobile money in developing markets.
Christopher Ruane owns shares in Vodafone.
