Two dividend stocks I feel could be savvy buys for my holdings are Impact Healthcare REIT (LSE: IHR) and Diageo (LSE: DGE).
Here’s why I’d be willing to buy some shares when I next have some investable funds, despite credible challenges to the payouts. And it is always worth remembering that dividends are never guaranteed.
Healthcare properties
Impact Healthcare is set up as a real estate investment trust (REIT), meaning it must return 90% of profits to shareholders. The firm specialises in care homes, and ties its tenants down to long-term, inflation linked contracts.
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At present, Impact owns and operates 138 care homes across the UK. Its potential to grow earnings and returns is exciting for me as the UK population soars and will require care in the years to come.
From a fundamental view, the shares offer a dividend yield of 7.9%. For context, the FTSE 100 average is closer to 3.5%. Furthermore, the shares look good value for money on a forward price-to-earnings ratio of 8.5.
Moving to the bear case, issues in the commercial property sector have occurred due to higher interest rates. These have hurt net asset values (NAVs). However, the bigger challenge Impact faces is potential staff shortages in the care sector. It’s all well and good growing its portfolio and owning many care homes, but they can’t operate without qualified staff. I’ll keep an eye on this, but I believe it won’t be a deal breaker when it comes to shareholder value in the longer term.
Cheers to that!
Premium alcoholic drinks giant Diageo really doesn’t need much of an introduction, in my view at least. As the owner of some of the world’s favourite tipples, with a vast presence, immense brand power, and fantastic track record, I reckon the shares are a no-brainer buy for my portfolio.
Diageo has been coming to terms with economic turbulence in recent months, and this has been reflected in its share price fall, with performance being impacted too. High inflation and interest rates have left many consumers struggling with higher essential bills. Luxuries like premium alcohol aren’t atop the priority list of most, and sales have been falling, especially in the Caribbean and Latin America, two key growth markets.
I reckon these short-term challenges may distort the view of what looks to me like an excellent stock. Firstly, there’s no denying Diageo’s brand power, and there aren’t many firms in its industry that can boast a presence of selling products in 180 countries globally. Plus, as interest rates come down, I reckon spending will increase once more. This could help boost earnings and returns.
The beauty of the recent dip is it has allowed investors like me to gain a better entry point. At present, Diageo shares trade on a price-to-earnings ratio of 16. This is lower than its recent average.
Now for the cherry on top. A dividend yield of 3.8% may not sound mammoth. However, as a Foolish investor, I’m more concerned about consistent payouts. Well, Diageo is nothing if not consistent. The firm has paid a dividend for close to 40 years in a row. It has also increased it for many of those, giving it the deserved moniker of Dividend Aristocrat. However, I do understand that the past isn’t a guarantee of the future.
