High-quality dividend stocks can be excellent long-term investments. The best dividend shares tend to provide both regular income and capital growth which, over time, can make a big difference to your wealth.
Here, I highlight three UK dividend stocks I’d buy today. In my view, all have the potential to provide healthy total returns to investors over the long term.
The best UK dividend stock?
The first UK dividend stock is consumer goods company Unilever (LSE: ULVR). It paid out total dividends of €1.64 last year which equates to a trailing dividend yield of 3.3% at present. That’s about three times the best savings account rates.
There are a few reasons I like Unilever as a dividend stock. Firstly, it’s a resilient company. Because it manufactures products that people use every day, earnings tend to be relatively steady throughout the economic cycle. This translates to consistent dividends.
Secondly, dividend coverage – a key measure of dividend sustainability – is solid. Last year, Unilever’s dividend coverage ratio (earnings divided by dividends) was about 1.6.
Finally, Unilever has an outstanding long-term dividend growth track record. Over the long run, the payout has increased significantly.
All in all, I think Unilever is a top dividend stock. It’s one of the first UK dividend shares I’d buy today.
Strong dividend growth
Another I like is accounting specialist Sage (LSE: SGE). It paid out dividends of 16.9p last year. At the current share price, that’s a yield of 2.3%.
Like Unilever, Sage has a number of attributes that make it a top dividend stock. Firstly, it tends to generate a high proportion of recurring revenues. This is what you want as a dividend investor, as recurring revenues translate to consistent earnings which, in turn, translate to consistent dividends.
Secondly, dividend coverage is respectable. Last year, Sage’s dividend coverage ratio was about 1.5. Third, the company tends to increase its dividend by quite a bit every year. Over the last 10 years, Sage has raised its payout from 7.4p per share to 16.9p per share. That represents annualised growth of 8.6%.
I see Sage as a very attractive stock. And I’m not the only one who likes it. A number of top UK fund managers, such as Terry Smith and Nick Train, hold SGE in their funds.
Finally, I also like defence giant BAE Systems (LSE: BA). Earlier in the year, it deferred the decision on whether to pay out its final dividend for 2019. However, in its recent half-year results, the company said it would be paying this to shareholders, as well as a 9.4p per share payment for the first half of 2020. Last year’s total dividend of 23.2p per share equates to a trailing yield of about 4.4% at the current share price, which is a fantastic yield in the current environment.
I think BAE is a good dividend stock for a few reasons. Firstly, its revenues are largely government-backed. This adds stability. Secondly, dividend coverage is high. Last year, it was just below two. Third, the company has a good long-term dividend growth track record. It doesn’t tend to lift its payout by much every year, but the payout does get increased consistently.
All in all, I think BAE Systems is a good choice for those looking for reliable dividends.
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Edward Sheldon owns shares in Unilever, Sage, and BAE Systems. The Motley Fool UK has recommended Sage Group and Unilever. 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.