The London stock market’s packed with excellent dividend shares. Whether you’re searching for high dividend yields, payout growth or income stability, the FTSE 100 and FTSE 250 indices are great destinations for savvy investors.
I’ve been taking advantage of the range on offer and bought these hot dividend stocks for my portfolio: Legal & General (LSE:LGEN), and Coca-Cola HBC (LSE:CCH).
But what makes them such good ideas to consider for passive income?
A FTSE-smashing yield
With Legal & General, I get to hold a stock that’s consistently held one of the FTSE 100’s highest dividend yields. In fact today, it sits at the top of the UK blue-chip pile with an enormous 8.9% yield. That’s more than triple the broader Footsie average.
L&G’s able to achieve this thanks to its reliably brilliant cash generation. Through regular insurance premium collections, asset management fees and shrewd capital planning, it’s able to source a steady flow of money it can then distribute to shareholders.
Buying shares with high yields can come with added danger. Enormous dividends can be unsustainable, and can signal a business in distress.
However, L&G’s strong record of dividend growth assuages any fears I have. Payouts have risen every year bar one since the early 2010s. And it has a cash-rich balance sheet that helps guarantee future dividends — its Solvency II ratio was 217% as of June, the second-highest in its industry.
An economic downturn could hit Legal & General’s share price if financial product demand slips. But I’m not expecting this to damage the company’s place as a top dividend stock.
Excellent dividend growth
At 3%, Coca-Cola HBC’s forward dividend yield sits some way below L&G’s. But don’t stop reading just yet. For my money, it’s one of the greatest dividend growth stocks out there.
With Coca-Cola, I know that cash rewards are (likely) going to rise every year, barring some once-in-a-generation-style catastrophe. This gives me enormous comfort, as increasing dividends help my portfolio keep pace with inflation.
The FTSE 100 company’s dividends have risen every year for more than a decade. Not only this, but they’ve grown at a market-beating yearly average of 11.1%.
Why is Coca-Cola such a reliable dividend grower though? One reason is the exceptional brand power of its broad product portfolio. Drinks such as Coke, Fanta and Sprite remain in constant high demand, providing a steady stream of revenue.
It’s also thanks to the drinks bottler’s geographic model. It sells its much-loved labels across Africa, Asia and Europe, protecting earnings from weakness in certain regions. What’s more, as that selection shows, its operations span fast-growing emerging and developing regions where demand for soft drinks is rocketing, driving revenues.
There are risks with Coca-Cola, like fierce competition from other global players and local manufacturers. It also has to fight hard to keep a lid on costs.
But on balance, I’m still expecting it to remain one of the FTSE’s best dividend shares. City analysts expect annual dividends to keep rising through to 2027 at least.
