Dividend stocks form a core part of my portfolio. In fact, as inflation reaches levels not seen in decades, I’ve shifted my portfolio more towards dividend stocks and away from growth stocks. Inflation and higher interest rates can make growth stocks less appealing to investors as they favour near-term gains. So, here are five dividend stocks I’m considering buying in May.
Direct Line
If I buy Direct Line today, I can expect a whopping 8.95% dividend yield. The firm recently upped its dividend after making £343m in post-tax profits in 2021. That wasn’t its best year but the performance was enough to warrant raising the dividend. Direct Line has a higher price-to-earnings ratio than a stock like Lloyds. But its share price and profit data have also been on a steady downward trend in recent years. However, it remains a very profitable firm. There might be new competitors in the market but I don’t think the need for insurance is going to disappear overnight.
Persimmon
No list of high-paying dividend stocks for me is complete without Persimmon. The housebuilder is the higest-paying share on the on the FTSE 100. If I bought today, I could expect a dividend yield of 11.2%. However, while I’m positive on the long-term prospects for housebuilders, there may be some short-term pain in the form of higher interest rates. Having said that, with sky-high demand, I’d expect most of Persimmon’s order book to be full for the year. Another issue is the cladding crisis. The housebuilder has put aside £75m for cladding purposes, but this figure could increase further.
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Phoenix Group
Life insurance specialist Phoenix Group owns household names like Standard Life and ReAssure. At today’s price, I could expect a dividend yield of 8%. The dividend was only upped in March so I don’t think there’s much risk of it being cut in the near future. The blue-chip recorded a bumper year in 2021. Cash generation for the year to 31 December 2021 was £1.72bn, well above internal targets of between £1.5bn and £1.6bn.
NatWest
NatWest isn’t offering dividend yields as high as other companies on this list, but I think it’s got a healthy dividend coverage ratio and it could benefit from increased interest rates. If I were to buy today, I could expect a dividend yield of 4.8%. On Friday, the lender posted a 41% jump in first-quarter profit, as rising rates boosted income. It reported a pre-tax profit of £1.2bn, up from £885m a year earlier. A downturn in the economy could definitely hamper operations. However, I’ve recently bought shares in NatWest as I feel this stock will grow in the long term, and it may get some more short-term tailwinds in the form of higher interest rates.
Imperial Brands
Many people don’t like investing in tobacco, so Imperial Brands is a controversial one. However, it’s something I’m considering buying. If I buy now, I can expect a dividend yield of 8.3%. The stock looks pretty cheap too with a price-to-earnings ratio of 6.8, but of course there are reasons for that. Tobacco firms could see their traditional operations collapse as a result of regulatory changes and policy decisions. There’s plenty of risk here but it’s one I’ll continue to watch.
