Dividend stocks are a great way to generate passive income. After a tough 2020, even some of the best UK dividend stocks were forced to cut down on shareholder returns.
As the market bounces back, the yield from reliable dividend stocks can create a steady trickle of money for long-term investors that can boost returns. With that being said, here are three UK dividend stocks I am looking at for the coming months.
A safe dividend stock with steady returns
Unilever (LSE: ULVR) is a leading FTSE 100 consumer goods company that owns some of the most recognised brands like Dove, Lynx and Surf. Unilever announced its dividend per ordinary share of 37.10p for the first quarter of 2021. It offers a stable 3.5% prospective dividend yield and even during the global pandemic, did not decrease the dividend percentage below 3%.
The company offers a steady dividend to shareholders as the business remains stable without any major fluctuations in revenue and earnings. It managed to show better sales figures through the lockdown period compared to direct competitors, which to me shows a large market share, making it an attractive long-term option for my portfolio.
However, there is a risk of further dividend cuts if sales figures do not bounce back as expected. There are signs that point to a laboured recovery from the lockdown. Net revenue and operating income of the company dropped over 12% last year. But historical data shows a consistent growth in dividend yield in the last five years with a 45.1% increase since the first quarter of 2016, which makes it a robust option in my opinion.
Low risk, high yield
The next entry on my list of UK dividend stocks to buy is J Sainsbury (LSE:SBRY). As part of the four largest supermarket chains in the UK, Sainsbury holds a market share of about 15%, second only to Tesco.
The company managed to bounce back well from the effects of the pandemic, showing a near 30% increase in share price in the past year. The average dividend yield for Sainsbury is 4.5%. Even though profits before tax for last year was down 39%, strong online sales helped maintain a steady dividend price.
But there are concerns as it is a competitive sector with slim profit margins. It is also highly dependent on raw material cost and price of goods from other countries. But the strong rally after 2020 shows me that the company is set for a strong H2 in 2021.
Another strong performer in 2021 is Mondi. The packaging company offers an average dividend yield of over 3% and I think it is uniquely poised to take advantage of the e-commerce boom. I think its share price will continue to grow over the next year.
Again, like Sainsbury, the profits are highly dependent on raw material price. In this case, the price of paper and cardboard has been increasing steadily. This could cut down on net profit. But the business model and promise of greener alternatives in the packaging sector gives me hope, putting Mondi on my list of UK dividend stocks to watch.
