Research shows that over the long term, dividends can account for as much as 50% of an investor’s profits. This implies that dividend stocks should form a core component of every investor’s portfolio.
Unfortunately, this year, many former dividend champions have slashed their distributions to investors. However, a handful of firms have stood by their payouts. I reckon these companies could be fantastic portfolio additions.
Today, I’m going to take a look at three of these no-brainer dividend stocks.
Grainger (LSE: GRI) is one of the largest publicly traded residential landlords in the UK. It owns nearly 10,000 homes across the country, which provide a steady income stream for the business.
Recent trading updates from the group show rent collection has remained strong this year, unlike other property-focused firms. The business has collected 95% of rents so far in 2020. What’s more, rents have increased by 3% on average across the portfolio.
All of the above implies that one can depend on Grainger to produce a steady income through dividends. The stock currently offers a dividend yield of 2%. The distribution has grown at an average rate of 18% for the past five years, which suggests investors could see strong payout growth in the years ahead. Indeed, the company has a pipeline of around 1,500 new homes, which should help underpin earnings and dividend growth as they’re rented to customers.
Blue-chip dividend stocks
I think Hargreaves Lansdown (LSE: HL) also qualifies as a no-brainer dividend stock. The reason why I like this company as an income play is simple, the group has substantial profit margins.
The organisation’s operating profit margin has averaged 62% since 2015. This has provided the firm with vast amounts of cash to reinvest and return to investors. According to my figures, since 2015, Hargreaves has returned approximately £1bn to investors with dividends.
With profits set to jump this year, analysts are expecting the group to hike its dividend by around 11%. This may give the stock a 3% dividend yield.
Considering the firm’s track record of returning cash to investors, I think one could benefit from buying the stock as an income investment. Over the past five years, Hargreaves’ net income has grown at an annual rate of 15%, generating strong capital growth as well.
Another blue-chip income play I believe one could benefit from buying is CRH (LSE: CRH).
As dividend stocks go, this business does not jump out at investors. The building business is hardly the most recognisable business on the market. However, as one of the largest building products providers in the world, CRH has large profit margins and substantial economies of scale.
These qualities have helped the firm become an income champion. The stock currently supports a dividend yield of nearly 3%. What’s more, the payout is covered 2.3 times by earnings per share, so there’s plenty of room for payout growth in the years ahead. The distribution has grown at a compound annual rate of 6% for the past decade.
Governments around the world are already planning large building programmes to help their respective economies recover from Covid-19 lockdowns. CRH could become a primary beneficiary of this spending. That’s why I think it could be worth buying this undercover income stock today.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.