When it comes to great dividend shares, there are two key factors that I consider. The obvious one is the income generation, usually observed by the dividend yield. The second factor is the share price performance over a period of time. Here are two stocks I’ve noted that are both above average when compared to the main index.
Insuring profitability
Firstly, let’s establish the benchmark. The average dividend yield for the FTSE 100 is 3.55%. The index is up 8.61% over the past year. So, ideally, I need to select shares that are ahead of both of these metrics. If not, then I’m better off investing in a tracker fund that distributes the income.
One stock that is well ahead of this is Aviva (LSE:AV). The insurance and wealth management provider has a current yield of 7.13%, with the stock also up by 17% over the past year.
In the H1 2024 report, it recorded double-digit percentage growth in operating profit, cash remittances, and capital generation versus H1 2023. The CEO commented that “sales are up. Operating profit is up. The dividend is up. Our plan to deliver more for customers and shareholders is working really
well”.
Given the nature of insurance and the written premiums, the business does have solid cash generation. This makes it appealing for dividend hunters. I can’t see this changing anytime soon, which means it’s one of the top stocks on my radar to consider adding to my portfolio.
One concern is that it can come undone via natural disasters. It offers home and travel insurance and so any form of black swan event could trigger losses for Aviva.
Moving with momentum
Another option I’m thinking about is BT Group (LSE:BT.A). Although it has a lower yield than Aviva at 5.53%, the stock has risen by almost 22% over the last year.
The share price surged back in May after the full-year results highlighted that the business was past the peak of capital expense spending with regards to the fibre broadband rollout. In my eyes, this means that the dividend payments will be more sustainable going forward, as investment elsewhere isn’t soaking up all the free cash.
Further, BT managed to hit the £3bn cost and service transformation programme a year ahead of schedule. Again, this means the firm will be more nimble and efficient going forward, reducing potential cash wastage.
Some people might be worried about the increasing stake that billionaire Carlos Slim has in the company. His family-owned business now owns 4.3% of BT Group, but his exact motives haven’t been revealed. It might not be anything to be concerned about, but some clarity would be helpful.
Overall, I like both stocks and will likely add them later this month to my investment pot.
