Not all dividend stocks are the same. Some offer higher starting yields, while others have better growth prospects.
Right now, I can see shares in each category for investors to consider. And they’re not always the most obvious names.
Associated British Foods
The FTSE 100 currently has a dividend yield of 3.3%. And Associated British Foods (LSE:ABF) is exactly in line with this.
That makes the next question a straightforward one – is this an above-average business? I think it might be.
The company’s main asset is Primark. And while it’s a retailer, it’s important not to underestimate just how valuable it is. Primark recently reported a fall in like-for-like sales across Europe. But that’s not as significant as it might be.
It certainly highlights a key risk. When consumer spending is weak, lower sales can lead to price cuts that weigh on margins. Unlike the majority of publicly-traded retailers, though, Primark is still expanding rapidly. Especially in the US.
The firm currently has around 38 stores in the US. But there’s talk of this growing to over 100 by 2030, which is a big increase.
While success isn’t guaranteed, the early signs are promising. And there are also expansion plans in other countries. That means Primark’s growth isn’t limited to like-for-like sales. And it’s why I think dividend investors should take a look.
Grainger
Despite excess inventory in the UK housing market, affordability issues remain. Enter Grainger (LSE:GRI).
Ultimately, housing is a basic need. And if people aren’t in a position to buy – for whatever reason – they have to rent.
The firm owns and leases residential properties. And it has 11,000 properties with 5,000 more in its pipeline for future growth
In terms of the dividend, the situation is a little complicated. Grainger is becoming a real estate investment trust (REIT). That means the dividend will become mandatory. But the firm should benefit from tax exemptions on its rental income.
Analysts think the result will be a yield of around 5.5%. And that might well be attractive in today’s market.
There’s obviously a shortage of housing in the UK, so demand for Grainger’s properties should stay strong. But there are risks. One of these is regulation. Shifting standards can result in higher costs and while Grainger is well-positioned right now, that could change.
In terms of dividends, though, this looks like an interesting business in a durable industry. And I think it’s worth a closer look.
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.
Income investing
There’s more than one way to be a dividend investor. But the best opportunities are often high-quality companies that the market underestimates.
In my view, both Associated British Foods and Grainger meet this description. Neither is a high-octane bushes, but that’s not the point.
Both combine decent dividends with strong growth prospects. And that’s what I think investors looking for passive income should prioritise.
