We asked our freelance writers to share the top income stocks they’d buy in February. Here’s what they chose:
Kevin Godbold: National Grid
The FTSE 100’s National Grid (LSE: NG) has a long record of delivering strong operating cashflow leading to incremental rises in the shareholder dividend. And the company’s regulated monopoly position at the heart of the UK’s energy systems keeps the cash flowing. There’s also a regulated energy business in the US.
Perhaps the biggest risk is regulatory requirements could change in the future. And that could make it difficult for the firm to raise or maintain dividend payments. However, that scenario hasn’t happened and may never occur. Meanwhile, with the share price near 867p, the yield is around 5.7%.
Kevin Godbold does not own shares in National Grid.
Rupert Hargreaves: TP ICAP
TP ICAP (LSE: TCAP) is a financial broker, which facilitates trading in products such as oil, copper, and oats. Market uncertainty is excellent for this business. TP takes a small commission on each trade, so profits can surge when traders are jittery. Of course, this also works the other way. Profits can fall in periods of calm.
TP has a track record of paying large dividends to investors. At the time of writing, the stock is set to yield 7%. After a year of market volatility, I think this payout is sustainable in the near term, although in the long term, nothing is guaranteed.
Rupert Hargreaves does not own shares in TP ICAP.
Kirsteen Mackay: GlaxoSmithKline
GlaxoSmithKline (LSE:GSK) is slower in the vaccine race than competitors but that might not be a bad thing. GSK is a vaccine manufacturer in normal times, not just Covid-19 times, so its expertise could prove golden going forward. It has joined forces with CureVac to focus on developing vaccines that tackle emerging coronavirus variants that existing vaccines may not work against. It’s also continuing to trial its vaccine in the over-65s.
It has a price-to-earnings ratio of 13 and earnings per share are 93p. GlaxoSmithKline will be cutting its 6% dividend yield next year, when it spins out its consumer division. But in the long run, I think this top income stock looks a good investment.
Kirsteen Mackay does own shares in GlaxoSmithKline.
Christopher Ruane: Imperial Brands
Tobacco stocks tend to be highly cash generative. When such free cash flow is paid out as dividends, it can be substantial.
One concern is falling rates of smoking in many developed markets. That may be why the City marked Lambert and Butler owner Imperial Brands (LSE:IMB) down after a strategy update last month. The company plans to invest in its cigarette business in five key markets. That may sound like doubling down on a declining business.
But I think the clearer focus could help sustain earnings – and dividends. Imperial’s yield is close to 10%. I find that very attractive.
Christopher Ruane owns shares in Imperial Tobacco.
Royston Wild: dotdigital Group
Now dotdigital Group (LSE: DOTD) doesn’t offer the biggest dividend yields out there. For this financial year (to June 2021) the yield sits at a modest 0.5%. But I’d buy this UK share on the likelihood that shareholder payouts will continue to boom. Annual dividends have risen 93% in the past five fiscal years as cash generation has rocketed.
I’d certainly buy dotdigital before the release of half-year financials scheduled for Thursday, February 25. Soaring e-commerce activity is supercharging demand for the online marketing specialist’s services. Latest financials in January showed organic revenues in the six months to December soar 22%. I fully expect that upcoming release to indicate that revenues have kept ripping higher.
Royston Wild does not own shares in dotdigital Group.
Jonathan Smith: National Grid
National Grid (LSE:NG) is a gas and electric utility company, operating mostly in the UK. As an established company within the market, high growth prospects in the short term are slim. However, the dividend pay-outs make this top income stock look attractive to me. It currently has a dividend yield of 5.62%, several percent higher than the FTSE 100 average.
The dividend yield has held around the 5% mark for several years and has kept being paid throughout the Covid-19 pandemic. This is in part thanks to a having a dividend cover above 1 for at least the past five years.
Jonathan Smith has no position in National Grid.
G A Chester: Polymetal International
Blue-chip gold and silver miner Polymetal International (LSE: POLY) will release its annual results on 3 March. Based on City analysts’ forecasts, it has an attractive P/E of 10 and a generous 5.5% dividend yield.
As a high-grade and low-cost producer, Polymetal’s positioned to remain profitable and pay dividends through varying gold and silver price environments. Meanwhile, its nine producing assets mitigate the risk of an operational setback at any one mine.
With a strong pipeline of future growth projects, I think the company’s low earnings rating and high dividend yield augur well for shareholder returns this year and beyond.
G A Chester has no position in Polymetal International.
Paul Summers: BHP Group
While commodity prices can be volatile, I suspect FTSE 100 mining giant BHP Group (LSE: BHP) could prove to be an excellent source of income over the next few years. The green energy revolution, gradual electrification of vehicles and subsequent need for copper are likely to play right into its hands. Moreover, BHP’s sheer size should allow it to keep production costs low relative to smaller peers.
Analysts have BHP returning 134p per share in cash in FY21, giving a yield of 6.6%. That’s far better than the paltry 0.55% being offered by the best Cash ISA.
Paul Summers has no position in BHP Group.
Edward Sheldon: Unilever
My top income stock is Unilever (LSE: ULVR). It’s a leading consumer goods company that owns a wide range of well-known brands such as Dove, Persil, and Ben & Jerry’s. The stock currently offers a prospective dividend yield of about 3.7%.
Unilever’s share price has pulled back recently. One reason for this is that full-year results for 2020 were a little underwhelming. However, the results weren’t terrible. Underlying sales growth came in at 1.9% and the company raised its dividend by 4%.
All things considered, I see the recent pullback as a good buying opportunity. With the shares now back near the 4,000p level (the same level at which Warren Buffett tried to buy the company a few years ago), I think it’s a good time to be building a position.
Edward Sheldon owns shares in Unilever.
Roland Head: Telecom Plus
FTSE 250 utility firm Telecom Plus (LSE: TEP) sells energy and telecoms services to consumers through its Utility Warehouse brand. Founder Charles Wigoder still owns 12% of the stock and the group’s dividend has not been cut for 14 years.
This business is unusual in that it doesn’t advertise and sells through a network of self-employed agents. Lockdown caused some disruption last year, but the firm was quick to adapt by moving sales online.
Broker forecasts suggest stable profits in 2021, with a dividend yield of 4.3%. I admire the firm’s steady progress and would buy TEP shares for income.
Roland Head does not own any share mentioned.
Manika Premsingh: Royal Dutch Shell
The FTSE 100 oil biggie Royal Dutch Shell (LSE: RDSB) just increased its dividends and now has a yield of 4%. This is despite its weak financial performance in 2020.
To me this shows that RDSB is confident about its future. I can see why. Brent crude price just crossed $60 a barrel, the highest in over a year. Easing lockdowns and growth pick-up likely in 2021, it’s a no-brainer that oil demand will rise too.
I reckon RDSB’s share price will benefit from this.
Moreover, it takes an extreme situation, like Covid-19, for it to cancel dividends.
I’ve just bought the share keeping in mind that it offers not just growth but also stable income.
Manika Premsingh owns shares of Royal Dutch Shell.
Harshil Patel: CMC Markets
CMC Markets (LSE:CMCX) is a UK-based online trading platform. Not only does it provide a 3.6% yield for income investors but it’s also a growing company. I like this combination of growth and income.
It intends to grow and diversify by continuing to invest in its technology. So far, it seems to be working, in my opinion. Further investment should lead to product expansion and the addition of new asset classes to its platform.
CMC Markets recently highlighted strong client trading activity. It also continues to attract premium clients and has managed to offer resilient platforms, even in volatile trading periods.
Harshil Patel has no position in CMC Markets.
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The Motley Fool UK has recommended dotDigital Group, GlaxoSmithKline, Greencoat UK Wind, Imperial Brands, 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.