Dividend shares look particularly appealing right now. In times of political conflict and economic disruption, they can often provide some extra stability. That said, they’re not all the same and some offer more reliable dividends than others.
Let’s take a look at a couple of great dividend shares that I’m considering right now. The average FTSE 100 dividend yield is currently 3.3%. Although a share yielding 3% can provide some extra passive income, there are several shares that offer much more.
Dial-a-dividend
For instance, telecoms provider Vodafone (LSE:VOD) currently yields 5.5%. But the dividend yield isn’t the only factor I’d consider. I’d also look at how sustainable it is. Can it afford it? For Vodafone, I’m confident it has sufficient cash flow to sustain the current level of payout. That’s because its dividend cover ratio of 1.1 suggests that it’ll earn more in earnings than it needs to pay out in dividends. Secondly, Vodafone has regularly paid dividends for almost three decades. It has a subscription-based business model that provides consistent cash flow. Looking forward, new technologies including 5G and Mobile-Edge Computing could create additional growth opportunities.
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Debt pile alert
A word of warning though. The company has a substantial debt pile that totalled €41bn (£34bn) last year. It could face higher finance costs if interest rates move higher over the coming months or years. That could reduce earnings and raise the chance of cutting its dividend. Overall, I reckon it has solid financials that can sustain its dividend, so I’d consider buying the shares for my Stocks and Shares ISA.
Little-known dividend shares
Some of the shares that I find are relatively unknown. But that’s ok. As long as they display the characteristics that I’m looking for, I really don’t mind if they aren’t household names. After all, as an investor, I just want to grow my investments. One little known dividend share that I’d buy right now is Chesnara (LSE:CSN). This mid-cap firm is in the business of managing life and pension policies. It stood out to me for three main reasons: it has an attractive dividend yield of 7.5%; it has 17 years of dividend history with consistent growth in cash payouts; and it has a proven successful track record of buying life and pensions businesses.
Risks and benefits
At a time when I’d expect the Bank of England to raise interest rates to tackle persistently high inflation, it’s great to find shares that could actually benefit. Higher interest rates should generally be positive for Chesnara. That said, there are still risks on the horizon. Sharp moves in currency and financial markets can raise its risk exposure. A large spike in the level of claims could also do the same.
Overall though, I like what I see and would happily buy. Dividend shares that consistently pay over 7% for so many years are rare. So when I find them, I’m inclined to snap them up pretty quickly.
