Dividend stocks play a valuable role in my investment portfolio. Not only do they provide me with two sources of return but they also add balance to my portfolio, which has more of a growth focus.
Here, I’m going to discuss two UK dividend stocks I’d be happy to buy today. Both have good long-term dividend track records and I believe they’ve the potential to deliver strong total returns (capital gains plus dividends) in the long run.
A top UK dividend stock
One UK dividend stock that strikes me as a ‘buy’ right now is Hargreaves Lansdown (LSE: HL). It operates the UK’s largest investment platform. At present, the stock offers a prospective yield of a little under 3%.
Hargreaves Lansdown has been a top dividend stock in recent years. Not only has the company increased its payout significantly, but it’s also paid out a number of special dividends. Last financial year, it rewarded investors with a special dividend of 17.4p per share.
I expect this dividend bonanza to continue. Across the UK, interest in investing and trading is very high right now and Hargreaves Lansdown is benefitting. In the four months to 30 April, the company added 126,000 new customers. This growth should help push revenue, earnings and dividends up. For the year ended 30 June, City analysts expect revenue growth of 14%.
There are risks to the investment case, of course. One I’m keeping an eye on is the rising level of competition. New entrants to the market, such as Trading 212 and Freetrade, are capturing market share. Hargreaves Lansdown may have to lower its fees to remain competitive. This could hit its profits and slow the growth of the dividend.
Overall however, I think the stock’s risk/reward profile is attractive. Its forward-looking P/E ratio of 27.9 seems quite reasonable, to my mind, given the company’s growth track record and future prospects.
A dividend champion
Another UK dividend stock I like right now is Smith & Nephew (LSE: SN), the leading medical device company. The prospective yield here is about 1.7%.
There are a number of things I like about Smith & Nephew from a dividend investing point of view. Firstly, the company has an amazing dividend track record — it’s paid out every single year since 1937. Even last year, when many FTSE 100 companies slashed their dividends due to Covid-19, it continued to do so.
Secondly, the company has solid growth prospects in both the short- and long term. In the short term, it should benefit as the global economy reopens and elective medical procedures are resumed. In the long term, it should benefit from an ever-growing ageing population.
In terms of risks, one is Covid-19 setbacks. Further lockdowns could hit revenues and profits. Another is competition from other medical device manufacturers.
Overall however, I’m very bullish on this dividend stock. It’s worth noting that analysts at Credit Suisse recently upgraded SN to ‘outperform’ from ‘neutral’ on the back of reopening optimism. The broker raised its price target to 1,805p — about 14% above the current share price.
Edward Sheldon owns shares of Hargreaves Lansdown and Smith & Nephew. The Motley Fool UK has recommended Hargreaves Lansdown and Smith & Nephew. 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.