If you rely on the income from your dividend stocks, the last couple of weeks have been pretty frightening. An incredible number of UK companies have suspended their payouts.
One crumb of comfort is that in most cases, I suspect these companies are simply being cautious. I’d expect many to resume payments in 2021. However, a dividend cut means a loss of income, even if it’s temporary.
The good news is that I believe there are still companies out there which can continue to fund shareholder payouts. Here are three stocks I’d buy today for a reliable income.
27 years without a cut
When it comes to dividend stocks, I think a good starting point is to look at a company’s history. FTSE 100 defence group BAE Systems (LSE: BA), has not cut its dividend for 27 years.
This impressive track record has been made possible by good cash generation and boardroom discipline. BAE’s debt levels are relatively modest and management takes care to keep the payout at a sustainable level — last year’s dividend was covered twice by earnings.
BAE reported an order book of £45bn at the end of 2019 — equivalent to more than two years’ revenue. Many projects stretch for years and include profitable service contracts to support equipment such as aircraft.
The stock looked expensive to me at 650p in February. But I think the current share price of c.500p should be a good level to buy. I see BAE’s 4.8% dividend yield as one of the safest in the FTSE 100.
I expect a 10% yield from this dividend stock
My next pick is FTSE 100 tobacco group Imperial Brands (LSE: IMB).
The Imperial Brands share price rose by 10% on Tuesday, after the company said that it had renewed and extended a key £3.5bn funding facility. This won’t necessarily be needed, but it provides the company with some reassuring flexibility — a bit like a big overdraft.
Imperial shares currently offer a forecast dividend yield of around 14%. Interestingly, this super-high yield may actually be affordable. Based on last year’s results, this dividend would have been covered by surplus cash.
The catch is that the group’s debts are a little too high for comfort and need to come down. When new boss Stefan Bomhard starts work in July, I suspect the payout will be trimmed. But even a 25% cut would still provide a yield of 10%. I expect Imperial to remain a reliable high-yield income stock.
A property dividend stock I’d buy
I’d be wary about investing in housebuilders at the moment. Several have already cut their dividends. However, one company I would trust is London-focused Berkeley Group Holdings (LSE: BKG).
Berkeley is chaired by founder Tony Pidgley, who has an impressive record of timing the market. Back in 2018, the firm began investing in a new wave of long-term projects that are expected to support planned shareholder returns through to 2025.
The current market freeze is unlikely to cause a big problem, in my view. Last week, Berkeley reported a net cash balance of more than £1bn, after funding a £125m dividend payout. In its latest update, the company confirmed that its top priority was maintaining the dividend. I don’t expect a cut.
Market forecasts suggest a dividend yield of around 5% over the coming year. At this level, I see Berkeley Group shares as a good buy for income.
Roland Head owns shares of Imperial Brands. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.