Most investors buy dividend stocks for one reason: they want dividend income. Unfortunately, many income investments have disappointed this year. At the beginning of the pandemic, countless companies cancelled their dividends to preserve cash.
While firms have since restarted their distributions, it still looks as if UK investors will be left nursing a significant dividend hole this year. However, some companies have bucked the trend. These dividend stocks are practically money machines. I’m interested in buying a selection of them.
One dividend stock that has performed exceptionally well over the past 12 months is British American Tobacco (LSE: BATS). This company did not reduce its dividend in the pandemic, and management is still forecasting an increase in the payout for the full year. Yet, despite this positive performance, the stock continues to trade below the level at which it began the year.
I think this could be a great opportunity, although it is, of course, a ‘sin stock’. Shares in the tobacco giant currently support a dividend yield of 8.3%. This is backed up with robust cash flows from its operations. It also has a long track record of above-inflation dividend increases.
That’s why I believe the dividend stock is practically a money machine. Over the past few months, it has proven that no matter what the economic environment, investors can rely on the dividend.
E-commerce has been the primary beneficiary of the pandemic. A side effect of this is the growing demand for logistical assets such as warehouses, to help fulfil orders. That’s where Tritax Big Box (LSE: BBOX) comes into play.
This company specialises in constructing and leasing so-called big box warehouses. These giant facilities are essential parts of the e-commerce logistical chain. Tritax builds the facilities and then leases them to customers on long contracts. The real estate investment trust is then able to return any excess profit to investors.
At the time of writing, the stock supports a dividend yield of 4%. I believe this is exceptionally secure as it is backed by cash flows from the growing e-commerce sector.
As such, I reckon this is an excellent way for me to gain exposure to a booming sector and generate a steady income stream at the same time.
Governments around the world have committed hundreds of billions of dollars in funding to rebuild after the pandemic. This suggests to me there’s going to be a surge in demand for essential commodities in the years ahead.
One of the best ways for me to play this trend, in my opinion, is to own BHP (LSE: BHP). As one of the largest mining groups in the world, the company has the best profit margins in the sector. This means it is also excessively cash generative. After years of reducing debt, it can return a lot of money to investors as well.
Analysts reckon the stock has the potential to support a dividend yield of 6% next year. I think that’s conservative. The price of iron ore has already jumped more than 40% in 2020. This tells me BHP could report big profits for 2020. Considering the firm’s history of returning cash to shareholders, I think this could translate into large dividends.
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Rupert Hargreaves owns shares in British American Tobacco. The Motley Fool UK has recommended Tritax Big Box REIT. 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.