The FTSE 100 and FTSE 250 share indexes are great places to go hunting for dividend shares. They include many established companies with mature business models, and which generate lots of excess cash that can be returned to shareholders.
Today, I’m looking for the best shares with large dividend yields to buy for my portfolio. But this isn’t all I require. I’m also seeking businesses that can provide a sustainable and growing payout over the long haul.
With this in mind, here are three I’m seriously considering adding to my Stocks and Shares ISA today. Each carries a dividend yield that comfortably beats the FTSE index’s 3.5% average.
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If broker forecasts are correct, a £15,000 lump sum invested equally across all three companies could net me £1,110 in passive income this year alone.
Dividends are never guaranteed, but I’m confident these shares will meet current dividend forecasts. Here’s why I think they could be top stocks to buy for long-term dividend income.
M&G
Buying shares whose predicted dividends are covered less than 2 times by expected earnings can be risky. This is certainly the case with M&G, where anticipated payouts and earnings are level for 2024.
However, a strong balance sheet can help cushion the blow of lower-than-expected earnings. And this financial services giant certainly has a lot of cash on its books to aid its dividend policy. Its Solvency II capital ratio was 203% as of December, up four percentage points year on year.
I think strong cash generation and growing sales will drive dividends higher over the long term too. Demand should increase as demographic trends raise demand for savings and investment products.
ITV
Broadcaster ITV’s dividend cover also falls below that safety watermark of 2 times. But at 1.8 times, the firm has a good cushion in case profits disappoint. Disappointing ad sales remains a threat as the UK economy splutters.
On top of this, the Love Island maker also — like M&G — can use its financial robustness to help it pay large dividends. Its net-debt-to-adjusted-EBITDA ratio keeps falling, and was just 0.9 times as of June.
The success of ITV’s fast-growing streaming business is an encouraging omen for profits and dividends in the coming years. Monthly active users leapt 17% in the first half, latest financials showed. I also think expansion at the ITV Studios unit bodes well for future shareholder returns.
Urban Logistics REIT
Urban Logistics REIT, as the name implies, is a real estate investment trust. This has a significant benefit for dividend investors. In exchange for certain tax advantages, these firms pay a minimum of 90% of yearly rental profits out to shareholders.
This doesn’t guarantee a large and growing dividend. Falling occupancy levels and missed rents can compromise a REIT’s ability to provide a passive income.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
However, I’m confident Urban Logistics will steadily increase dividends over the next decade. This will be supported by increasing demand for warehouse and distribution space as e-commerce expands and supply chains shift.
With a loan-to-value (LTV) ratio of 29.3% in March, this business also has low gearing which supports near-term dividend forecasts.
