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 January!
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Anglo American
What it does: Anglo American produces a number of key commodities including copper, iron ore, steelmaking coal nickel and diamonds.
By Andrew Mackie. 2023 has been a year to forget for Anglo American (LSE: AAL) investors, of which I include myself. Capping off a miserable year was a third production downgrade in 18 months. This resulted in its share price witnessing its biggest one-day fall since the global financial crisis.
Although it has significantly underperformed its industry peers, I am not unduly perturbed. Its policy of paying out 40% of underlying earnings to shareholders, translates into a healthy 4.5% dividend yield. This has helped cushion the blow somewhat. But it’s the long-term growth story, which really attracts me.
Mega trends including decarbonisation, urbanisation and a growing consumer middle class will be the engine of growth for the mining industry. But with its highly diversified portfolio of assets, Anglo is likely to be one of the biggest beneficiaries.
I am particularly excited by the prospects for the electrification metal, copper. A recent International Energy Agency report stated that annual global investments in power grids are estimated to double by the end of the decade. This is in response to a surge in demand on the grid brought on from the likes of EVs and heat pumps.
Ironically, Anglo’s savage downgrade in copper production over the next two years highlight what a challenge meeting net zero targets will be. The future for copper prices could not be rosier.
Andrew Mackie owns shares in Anglo American.
BAE Systems
What it does: BAE Systems is a technology-led defence, aerospace and security company. Its business spans from intelligence gathering to cyber security.
By Harshil Patel : BAE Systems (LSE:BA.) isn’t commonly thought of as a dividend stock. It currently offers a below-average 3% dividend yield.
But there’s more to dividend stocks than just their yield. For instance, BAE has a long history of consistently raising its payout. Its annual dividend has almost tripled over the past 20 years from 9.2p to 27p more recently.
Patient investors that held the shares since then now enjoy a 17% yield on the price they paid.
In addition, earnings have grown over time too. This has resulted in a long-term average annual return of 12% a year including dividends.
Looking ahead, BAE offers long-term sales visibility, strong cash conversion and a double-digit return on capital employed.
Due to the nature of the business, it’s subject to geopolitical uncertainties. That said, it has a range of business areas. It’s also likely to innovate and leverage its technology to continue growing over the coming years.
Overall, I’d describe it as a quality dividend stock with growth potential.
Harshil Patel does not own shares in BAE Systems.
HSBC
What it does: HSBC is one of the world’s largest banks serving nearly 40m customers in over 60 countries.
By Charlie Keough. 2023 was an impressive year for HSBC (LSE:HSBA) shares. During that time, they considerably outperformed the FTSE 100.
One of HSBC’s main selling points is its substantial yield. As I write, this sits at 5.3%. In 2023, the bank also looked to give back to shareholders, including share buybacks totalling $7bn.
On top of that, the stock looks cheap. With a price-to-earnings ratio of 5.8, I think investors could be undervaluing it.
The exposure the firm has to Asia could hamper it in the near term. The Chinese proper market has taken a wobble recently. Ongoing geopolitical tensions are also a risk.
Nonetheless, I see its focus on Asia paying dividends in the long run. So does HSBC, evident from the $6bn that it’s set aside to invest in the region. With its attractive valuation and meaty yield, I think HSBC stock offers large potential.
Charlie Keough does not own shares in HSBC.
Legal & General Group
What it does: Legal & General provides retirement and insurance services. The group has more than £1tn of assets under management.
By Roland Head. I recently added to my Legal & General Group (LSE: LGEN) holding, making it one of the largest positions in my portfolio. I think this FTSE 100 stock is attractively valued as we head into 2024.
In my view, the company’s large-scale business model and track record of strong cash generation suggests that the shares are probably cheap at current levels. I expect the 8%+ dividend yield to remain safe and continue to rise, although slowly.
Of course, a large financial services business like this could suffer disruption if the world suffers another financial crisis. I can’t be sure. But Legal & General has been trading successfully for more than 180 years. It’s handled problems before.
The shares are currently trading on around nine times 2024 forecast earnings, with a prospective dividend yield of about 8.5%. I reckon Legal & General is one of the best income opportunities in today’s market.
Roland Head owns shares in Legal & General Group.
