I love to buy dividend shares in my Stocks and Shares ISA. While dividends are never guaranteed, UK shares have proven to be a great way to make a reliable and abundant passive income over the years.
Purchasing shares for a second income’s an especially attractive idea this August too. The London stock market has enjoyed a strong rally in 2023. But years of underperformance mean that the dividend yields on many top stocks remain at exceptional levels.
Take the following two FTSE 100 and AIM stocks, for instance. As the below table shows, their dividend yields sail above the current 3.5% average for Footsie shares.
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The beauty of these stocks is that they should grow dividends over the long run as well. Here’s why I’d buy them if I had spare cash to invest.
Vodafone Group
Vodafone was for a long time tipped by investors and analysts to cut its dividends. They predicted payouts would fall due to the firm’s high debt levels and significant investment in 5G expansion.
This year, the firm’s finally bitten the bullet and rebased the dividend. Yet despite this setback, I believe Vodafone shares still merit serious consideration from income investors.
At 7%, the telecoms titan’s dividend yield’s still double the Footsie index average. The huge investment it’s making in mobile and broadband could pave the way for solid long-term payout growth too, if profits and cash flows grow as planned.
I’m also encouraged by its plans to double-down on the brilliant Vodafone Business division, and to continue expanding in Africa. Organic service revenues in this fast-growing territory soared 10% in the three months to June.
It remains risky after years of attempted turnarounds and still-high debt.
Yet Vodafone’s transformation programme to fix its balance sheet and cut costs should improve its chances of growing dividends again. This includes a reduction in its global headcount of some 11,000 roles.
Tritax EuroBox
Tritax EuroBox owns and lets out warehouses across Continental Europe. So the reliable rental income it receives allows it to pay a steady dividend to its shareholders.
Demand for the storage and logistics assets it specialises in is booming. This is thanks to themes like supply chain onshoring, the growth of online shopping, and rapid data centre expansion.
On an annual basis, the European weighted prime average rent in this sector rose by 6.6% in Q1. That’s according to research from property firm JLL.
Growth has been cooling, which can’t be ignored. Yet these increases remain far ahead of those seen in other real estate segments. Weak development activity suggests rents should keep rocketing too.
As I said at the top, dividends aren’t guaranteed. But the firm’s policy of paying out at least 85% of adjusted earnings to shareholders is a good omen for income investors.
Current economic weakness in Germany could hamper profits growth in the nearer term. But, on balance, I still believe Tritax EuroBox could be a top stock to consider buying.
