As Christmas spending bill hits us all in January, now is the perfect time to consider extra income. One needs look no further than UK dividend shares. Picking the right stock can be a safe and effective way to add passive income to your portfolio.
My criteria for dividend shares
Though some of these aspects can vary, when looking mainly for dividends, the shares I choose are usually blue chip. This means large, well-established companies, probably in the FTSE 100. I want my initial investment to stay safe.
I look for consistent dividend growth, over say the last five years, as I want my income to beat inflation. As for yield, the return the dividends give us on the price of the shares we buy, I consider the 4%-6% range good. In today’s market though, this can be beaten. Here are my top three UK dividend shares to buy before 2021.
The defence contractor has made the top of my list of dividend shares for many years now. BAE Systems (LSE: BAE) may not see many headlines for making shock price movements, but it is a solid performer in a solid sector.
Yielding about 4.5%, it is not necessarily the highest payout, but I consider it one of the more stable. The UK government has recently stated its intention to increase defence spending, while last month the German government confirmed its purchase of 38 Eurofighters. I suspect BAE will be able to maintain its dividend going forward.
With all the focus on a Covid-19 vaccine, it may seem natural to include a pharmaceutical major in my best dividend shares list. Personally I doubt vaccines will have any immediate benefit on GlaxoSmithKline’s (LSE: GSK) bottom line, but in the long run it will.
Covid-19 will no doubt bring more public awareness and more government spending to the subject of pandemics – one that has seen quite a lack of funding or support in the past. I think all the pharmaceutical majors will benefit in the long run.
As for my choice, while I think other pharma firms may see more growth in 2021, yielding about 5.6%, GSK is a clear winner in the arena of pharmaceutical dividend shares.
I am of the opinion that Covid-19 and the sell-off in crude oil had a disproportionate impact on the share prices of some oil majors. As vaccines roll out this should abate somewhat.
The crude market does have some fundamental weakness – namely a large amount of spare capacity – however, I think OPEC and Russia well be doing their best to mitigate this. I doubt 2021 will see oil prices rise much above $60/bbl, but then again, BP doesn’t need it to in order to make money.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Karl has shares in BAE Systems and BP. The Motley Fool UK has recommended GlaxoSmithKline. 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.