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10 of the best dividend stocks to buy in 2021

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As an income investor, I’m always looking for the best dividend stocks to buy. As we head into the second half of 2021, I’ve been taking a fresh look at the market to see what’s on offer.

My research has produced 10 dividend shares with an average forecast yield of 6.0%. According to brokers AJ Bell, the average forecast yield for the FTSE 100 this year is 3.7% — so my selection nearly doubles this.

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However, I should emphasise that no dividend is ever guaranteed. For this reason, I would not rely on just 10 stocks to provide me with an income. I’d target a diversified, larger portfolio of perhaps 20 stocks, to give some protection from unforeseen events.

5 top yielders: 6% and above

I’m going to start with the highest-yielding shares I’d buy from the FTSE 350 today. As things stand, I believe these payouts should be sustainable, although growth is likely to be slow. 

Company

Description

Forecast dividend yield

Imperial Brands

One of two big tobacco companies in the FTSE 100. I believe performance is improving under new CEO Stefan Bomhard.

8.8%

Direct Line Insurance

This well-known motor insurance company is expanding into commercial insurance. I expect recent IT investment to boost growth.

8.2%

Persimmon

FTSE 100 housebuilder with a mid-market focus and big volumes. The generous payout looks safe to me unless the housing market crashes.

7.9%

Polymetal International

A big Russia-based gold miner with low costs. The dividend is linked to the gold price, but I see this as a good way to diversify.

6.8%

Legal & General

This savings and investment firm has an record of high returns. Big financials always carry some risk, but LGEN didn’t cut its dividend last year.

6.4%

Best dividend stocks with yields under 6%

With yields under 6%, I’m looking for a bit more growth. I need this to make sure my shares don’t lag the wider market — dividend growth usually drives share price growth.

Company

Description

Forecast dividend yield

SSE

This utility group is currently building the world’s largest wind farm, in the North Sea. I expect steady long-term progress.

5.4%

Tesco

The UK’s largest supermarket is operating well. New CEO Ken Murphy has a strong focus on cash generation. I think Tesco should deliver reliable dividend growth.

4.2%

ITV

Broadcaster ITV has had a few tough years, but I reckon the group is on the road to recovery under CEO Carolyn McCall.

4.1%

GlaxoSmithKline

Glaxo’s payout will fall next year when the company separates its consumer division. I’m breaking my own rules, but I believe this is a good long-term dividend growth choice.

4.1% (after next year’s cut)

Airtel Africa

I expect economic growth in Africa to be paired with growth in mobile networks and digital payments — two areas where Airtel Africa has a big share of the market.

4.0%

Final thoughts

I reckon these shares are among the best dividend stocks to buy at this point in 2021. But despite my love of dividends, two big risks are always on my mind.

One is that if dividend growth slows or stops, a company’s share price often suffers as investors worry about a slowdown.

A more serious problem is if the payout becomes unaffordable and is cut. This normally triggers a share price crash. There are usually some warning signs, but surprise cuts do happen.

Many of these risks can be avoided by good research — I’ll return to this topic in future articles.

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Roland Head owns shares of Airtel Africa Plc, Direct Line Insurance, GlaxoSmithKline, ITV, Imperial Brands, Persimmon, and Polymetal International. The Motley Fool UK has recommended GlaxoSmithKline, ITV, Imperial Brands, and Tesco. 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.

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