Want to make a market-beating second income? There’s no better place to go shopping for dividend stocks than the London stock market, in my opinion.
The UK is home to hundreds of shares offering large and growing dividends. And following years of underperformance, many of these companies offer truly exceptional yields right now.
Here are two income heroes that have grabbed my attention. As the table below shows, their forward dividend yields for this year soar above the 3.6% average for FTSE 100 shares
If broker forecasts prove to be true, a £20,000 lump sum invested equally across these two companies would provide a £1,480 passive income over the next year.
There’s a good chance that each stock will steadily grow dividends over the long term too, in my opinion. That said, it’s important to remember that shareholder payouts are never guaranteed.
With this in mind, let me explain why I think these particular dividend shares are worth serious consideration today.
Housing giant
Housebuilder Taylor Wimpey has steadily increased dividends following the peak of the Covid-19 crisis. However, with rising interest rate hikes having dented homes demand more recently, City analysts expect shareholder payouts to decline modestly in 2024.
Yet as the table shows, the Footsie company still has a very large dividend. And I believe it will be in good shape to grow dividends again should interest rates begin falling in the coming months, as appears likely.
Pleasingly the market is already showing signs of stabilisation. Taylor Wimpey’s net private sales rate per outlet per week bounced back to 0.73 between 1 January and 21 April. This was basically unchanged year on year.
The long-term outlook for Britain’s housing market remains robust, in my opinion, which bodes well for future shareholder returns.
It’s impossible to predict the next housing market downturn, but a rising domestic population should continue to push demand for new-build properties up. And Taylor Wimpey could receive an added boost from the Labour government’s pledge to build 300,000 new homes a year to 2029.
Sunny outlook
In some ways, Foresight Solar Fund could be considered ideal as a dividend stock. Its revenues are linked to inflation; it’s highly cash generative; and the stable nature of electricity demand means earnings remain stable across the economic cycle.
The company operates hundreds of solar farms in the UK, providing enough electricity for more than 400,000 homes. It also owns green energy assets in Spain and Australia, which in turn helps it to spread risk.
In recent times the company has raised its dividend target. And so the dividend yield for 2024 stands just below a brilliant 9%. A bright outlook for the renewable energy sector suggests it could continue delivering large and growing dividends long into the future too.
One concern I have related to the FTSE 250 firm’s high price-to-earnings (P/E) ratio of 25.3 times. A hefty valuation like this could spark a share price correction if news suddenly disappoints.
But on balance, I believe that — — like Taylor Wimpey — it’s a top stock for dividend investors to consider today.
