2 UK dividend stocks I’d buy now for my ISA

Jonathan Smith is considering a purchase of Unilever and Admiral Group as two UK dividend stocks paying above average dividend yields.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

We’re now past the ISA deadline for the 2020/21 subscription period. So my £20,000 allocation resets, and I can put money into my Stocks and Shares ISA and invest it as I see fit with less urgency.

But given the fact that there’s still a lot of uncertainty within the economy, I want to allocate some funds now into UK dividend stocks. That way, I can try to accumulate income. Even though I’ll leave it within my ISA so that I get the dividends paid gross of tax, it’s good to know I’m building a pot that I can call on if I need.

UK dividend stocks I’m considering

Even though some companies have cut dividend payouts due to the negative impact of the pandemic on cash flow, there are still multiple options. One that I like at the moment is Unilever (LSE:ULVR). The current dividend yield is 3.47%.

Unilever is a well known company that owns over 400 consumer brands. It focuses on three main divisions (food & drink, home care and personal care & beauty). Given that many of its brands are ‘needs’ versus ‘wants’, I think it’s a conservative UK dividend stock that doesn’t pose high risk.

This can be seen from the 2020 results. Even during a global pandemic, revenue only shrank by 4.2%. GAAP net profit actually grew slightly, by 0.8% versus 2019. I like this stability in earnings, and it’s something I think that will support a dividend continuing to be paid in the future.

A potential risk here is that because of the size of the business, high future growth is likely limited. For a company that turns over €12.1bn, I struggle to see a catalyst for double-digit annual growth. Versus a smaller and newer company, the opportunity cost to invest is quite high.

Shopping around for a deal

A second UK dividend stock that interests me at the moment is Admiral Group (LSE:ADM). It’s a financial services business, mostly serving the UK via home and vehicle insurance. It also operates websites including Confused.com for price comparisons. 

This UK dividend stock currently offers me a yield of 3.8%, which is above the FTSE 100 average. Added to this is a positive outlook for it, in my opinion. 

Profit grew by 21% in 2020, largely driven by growing the customer base by 10%. It’s also focusing heavily on further digitalisation and technology upgrades, something that I think will pay dividends (pardon the pun) going forward.

Although not something I usually put much weight on, Admiral also has a great company culture. It won three awards for being on shortlists of the best places to work in 2020. During the pandemic and remote working, having employees who feel valued (and therefore will go the extra mile to help), is important.

The risk for me is the personal loans side of the business. Given the economic uncertainty in the UK right now, I’d be concerned about possible defaults here damaging the overall performance.

Both the UK dividend stocks mentioned above offer me above average yields to add into my ISA. I’d consider buying both now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »