As an income investor, I only buy UK dividend shares. Friday’s market sell-off has provided me with an opportunity to top up several holdings in my portfolio and consider new dividend shares to buy for 2022.
Although the risk of a new variant is a potential concern, my view is that most parts of the economy have now learned to live with Covid. I don’t expect another 2020-style crash, so I’m taking a fresh look at dividend stocks on my watch list. Here are three I’d like to buy today.
This 10%-yielder is cheap enough for me
I’ve stayed away from mining giant Rio Tinto (LSE: RIO) in recent months. The stock’s surge to over £66 left it looking far too expensive, in my view. But Rio’s share price has fallen by more than 30% from its May peak and now looks more affordable to me, at around £45.
Rio’s rapid reverse since May is mainly due to fears that demand from China could slow. This has caused the price of iron ore to fall. However, the group’s related mines mines remain highly profitable, thanks to very low production costs.
Broker forecasts suggest Rio’s profits will fall in 2022, after hitting record levels in 2021. But the company’s strong trading has left it with plenty of cash. Next year’s dividend is expected to be around $6.20, giving a potential 10% yield. I reckon this outweighs the risk of further share price falls. I’d buy Rio at current levels.
A contrarian bargain?
Profits doubled at financial trading firm CMC Markets (LSE: CMCX) last year, as volatile markets attracted record levels of activity. The company’s profits are falling back to more normal levels this year, as I expected.
However, although this fall in profits was predictable, investors seem to have taken fright. Shares in CMC have fallen by more than 40% since the start of September.
This has left the stock trading on just 10 times forecast earnings, with a dividend yield of 4.5%. In my view, this is probably too cheap. The business has always enjoyed high profit margins and strong cash generation. It’s still run by founder Peter Cruddas, who owns 56% of the business.
CMC’s earnings will probably always be volatile, as they’re linked to market conditions. The business also faces some regulatory risk. But, in my view, this is a well-run, good quality operation. If I didn’t already own shares in rival IG Group, I would buy CMC today.
A buy-and-forget dividend share
My final pick is FTSE 100 defence giant BAE Systems (LSE: BA). This business has not cut its dividend for more than 20 years and continued to trade normally last year.
As one of the world’s largest defence groups, BAE is a prime name on many UK and US government contracts. This tends to provide good visibility of income, although the downside of depending on large contracts is that any delays or losses can have a big impact.
Chief executive Charles Woodburn seems to have managed this risk well in recent years and BAE was able to upgrade its 2021 profit guidance in July.
In 2022, analysts expect BAE to report an 8% rise in earnings and a 6% dividend increase. That would give the stock a tempting forecast yield of 4.6%.
I’ve owned BAE stock before and regret selling it. I may buy the shares back for my portfolio in the coming weeks.
