2 fantastic FTSE dividend stocks I’m watching right now

James Reynolds reveals two of his top dividend stock picks and why he will add them to his portfolio.

| 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.

Stacks of coins

Image source: Getty Images

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.

Dividend stocks are stocks you buy because the company they represent pays out a small sum to its shareholders as profit. This can happen once, twice, or even four times a year and the percentages are often much better than what one can get leaving your money in a bank. However, unlike bank interest, dividends are not guaranteed.

Here are two of my top picks from the FTSE 350.

Unilever

Unilever (LSE: ULVR) is a British multinational consumer goods company that owns or partially owns brands such as Ben & Jerries, Graze, and Dollar Shave Club. It currently trades at a fairly high 3,825p but has a very reasonable price-to-earnings ratio of 22. Unilever’s dividend yield currently sits at a mid-range 3.90%. Most importantly in my view, it has paid a dividend every single quarter since 2006.

If I make a quick online search, I can easily find the companies that, right now, are paying the highest dividends on the market. But high yields are often unsustainable and might not last more than a year or so. Of course, there is still no guarantee that Unilever will pay a dividend next year, or a single year after that. But with a long track record of paying shareholders, I feel confident that I can rely on them over the coming years. 

The Unilever share price has been unusually volatile lately, due in large part to the pandemic. My biggest concern, though, is the sheer amount of debt it has taken on since 2018. The company, which has yearly revenues averaging $50bn, now owes over $30bn.

I may wait until the share price comes down a little more, but after that I will be adding shares to my portfolio.

Imperial Brands

The Internet being what it is, I couldn’t help but try to find the ‘best value’ high yield dividend stock. I did this by looking at the current yield, and whether that company has a good ‘moat’ or aspect to its business that protects it from market ups and downs.

Imperial Brands (LSE: IMB) has both of these. This British tobacco company has not made a dividend payment lower then than 10p since May 1999 and currently pays a staggering 8.89% yield.

Tobacco users often have a preferred brand, and sales usually go up in difficult times. That is an excellent moat. It is also why the stock poses ethical concerns for some investors.

Imperial currently trades for 1,553p and has a very enviable price-to-earnings ratio of 5.30, but the value of the shares has been falling fast since 2016. This information gives away the biggest risk with investing in Imperial. The number of tobacco users is falling, and the people who do still smoke, smoke less than previous generations. This is good for our health, but bad for Imperial’s profits.

Personally, I think the dividend is worth the risk, at least in the medium term.

The UK has one of the lowest smoking rates of any country in the world, but Europe continues to have high rates of tobacco consumption. In 2017, 28% of people in France enjoyed some form of tobacco product. That number reaches 40% in Greece.

I fully expect the Imperial share price to continue to fall, so I’m going to wait a couple of months first before adding it to my portfolio.

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.

James Reynolds does not have a position in any of the shares mentioned. The Motley Fool UK has recommended 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »