As always, the start of a new year has many of us looking forward to the investments that might do well. Personally, I think income stocks may offer some of the best investment opportunities in the next 12 months. With that in mind, here are my top dividend shares for 2021.
My criteria for my top 2021 picks
Firstly, it is worth considering my criteria when choosing the top dividend shares for 2021. I pick companies that I think will pay out consistently, with likely annual dividend growth. I look for stocks that have solid financials so as not to lose my initial capital.
In terms of yield, there will be higher numbers out there, but I want payouts that I think are the least risky. For me, a yield below 4% is not worth it, and anything over 6% needs questions to be asked about why it is so high. So here are my three favourites.
BAE Systems (LSE: BA) has actually been one of my top dividend shares for the last few years, not just for 2021. This is with good reason — it is a solid performer in a solid sector. Currently offering a yield of about 4.5%, it is not the highest dividend on my list, but perhaps one of the safest.
Recently, the UK government confirmed plans to increase defence spending, which BAE will undoubtedly benefit from. The company’s accounts will also be bolstered after the German government’s confirmation that it will be buying 38 Eurofighters. I think this dividend is safe for some years to come.
As with BAE, BP (LSE: BP) has long been one of my top dividend shares. But last year the company cut its dividend, as Covid and low oil prices weighed on its finances. This low price is what makes it one of my top picks for 2021.
Even with the lower payout, it currently has a yield of about 8%. This is mainly due to its low share price. The price, I believe, should see some recovery this year as the oil market stabilises. This means now may be the perfect time to lock-in this high yield.
It is true that crude has some fundamental weaknesses right now, but the concerns surrounding Covid should hopefully abate in the latter half of the year as vaccines reach most of the population. I think even a small recovery in oil prices will help the BP share price bounce back.
Last but not least is the pharmaceutical giant GlaxoSmithKline (LSE: GSK). Though most of the buzz surrounding pharma right now concerns the Covid vaccine, this is not directly why GSK is one of my top dividend shares for 2021.
I do think in the long run, however, most of the pharmaceutical industry will benefit from the current drugs focus at government level. There is almost certainly going to be increased interest in, and government backing for, pandemic research and vaccines. It is also not unforeseen that a regular jab may be needed for Covid in the future.
Though some other firms may be better situated to benefit from this in terms of growth, with a current yield of 5.6%, GSK is a clear choice of the dividend shares in this sector, I feel.
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.