Every month, we ask our freelance writer investors to share their top ideas for dividend stock picks with you — here’s what they said for July!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
SSE
What it does: SSE produces energy and runs a transmission and distribution business in Scotland and England.
By Royston Wild. Selecting robust dividend stocks in the current climate requires extra care. Soaring inflation is threatening to derail the global economy and by extension profitability for UK plc. This could have significant ramifications on shareholder payouts in the near term and beyond.
This is why I think buying SSE (LSE: SSE) shares could be a good idea for investors. I believe the biggest threat facing this FTSE 100 stock in the near term is a painful hit from any windfall tax.
It’s my opinion that SSE is as close to a stress-free stock one can get in these uncertain times. The business generates electricity, one of life’s essential phenomena. It also operates a power distribution and transmission division that connects 3.8m homes and businesses.
I wouldn’t just buy the utilities business for its robustness, though. I think earnings here could soar over the next couple of decades as it increases investment in renewable energy sources. It hopes to increase renewables output fivefold in the decade to 2031.
SSE’s forward dividend yield sits at a healthy 5.5%.
Royston Wild does not own shares in SSE.
Rio Tinto
What it does: Rio Tinto owns and operates a number of mines around the world. Its largest product is iron ore.
By Stephen Wright. I’m looking carefully at Rio Tinto (LSE:RIO) shares in July. The stock is a Dividend Aristocrat, meaning that it has increased its base dividend consistently over the last 25 years.
I think that the stock is facing some headwinds that might give investors a decent opportunity to buy shares at a reasonable price in July.
High commodity prices have been helpful to Rio Tinto’s business recently and the company has done a good job of taking advantage of this. But I think that this might abate slightly in July.
With interest rates rising and inflation still at high levels, I think that demand for finished goods is going to decline. I anticipate this weighing demand for Rio Tinto’s raw materials and bringing the stock down.
If this happens, I’m looking at buying shares for my portfolio.
Stephen Wright does not own shares in Rio Tinto.
Redrow
What it does: Redrow is a FTSE 250 housebuilder with a focus on building good quality mid-priced homes designed for existing homeowners.
By Roland Head. I find that founder-led businesses are often safer investments in troubled times, thanks to prudent financial management. Redrow (LSE: RDW) founder Steve Morgan has retired and only owns 15% of the business, but I think his influence remains.
Like all housebuilders, Redrow’s share price has fallen in recent months. But the stock is starting to look cheap to me, with a 6% dividend yield that’s covered three times by forecast earnings.
Of course, there’s still a risk we’ll see a much deeper slowdown than the market is expecting. However, Redrow started the year with £240m of net cash and a £1.5bn order book. That’s equivalent to nine months’ sales.
My sums suggest Redrow’s 6% dividend yield will be safe, even if we do suffer a recession. For this reason, I think this could be a top dividend stock to buy in July. I’m considering Redrow for my own portfolio.
Roland Head does not own shares in Redrow.
Primary Health Properties
What it does: Primary Health Properties is a real estate company that owns healthcare properties across the UK and Ireland.
By Edward Sheldon, CFA. There are a few reasons I’ve selected Primary Health Properties (LSE:PHP) as my top dividend stock for July.
The main reason is that the company has defensive attributes. Not only does it operate in a defensive industry (people aren’t going to stop going to the doctor because there’s a recession), but a large chunk of its revenues are backed by the UK government. So, it’s a sleep-well-at-night stock, to my mind.
Another reason is that it owns ‘real assets’ – physical assets that have real value to society. In the past, these kinds of assets have protected investors against inflation.
Additionally, there’s a nice dividend here. At present, the prospective yield on offer is around 4.7%.
This dividend stock does have a slightly higher valuation. Currently, the forward-looking P/E ratio is around 20, which adds some risk.
However, I’m comfortable with the valuation here given the company’s defensive attributes and attractive yield.
Edward Sheldon has no position in Primary Health Properties.
Warehouse REIT
What it does: Warehouse REIT owns a diverse collection of well-positioned warehouses across the UK, primarily serving e-commerce enterprises.
By Zaven Boyrazian. With the pandemic accelerating the adoption of e-commerce, a growing problem has emerged. More products are being bought and sold online, requiring greater warehousing space that seems to be running out.
Warehouse REIT (LSE:WHR) is one of several players trying to solve this challenge. And so far, it’s significantly enjoying the tailwinds of surging demand. With the value of its storage facilities climbing and management successfully raising rental prices, free cash flow has exploded over the years, resulting in an attractive dividend yield of 4.2% today.
A lot of its property acquisitions have been funded through debt. And now that interest rates are rising, margins are expected to be squeezed. In fact, that’s why its shares have tumbled by 12% since the start of 2022. But with underlying operating margins standing at around 70%, I don’t see this as a major threat, making the recent drop a buying opportunity for investors, in my eyes.
Zaven Boyrazian does not own shares in Warehouse REIT.
HSBC
What it does: HSBC is a global banking and financial services firm, with segments ranging from mortgages to investment banking.
By Andrew Woods. HSBC (LSE:HSBA) showed resilience following a fall in profit during the pandemic. Between 2020 and 2021, pre-tax profit more than doubled from $8.7bn to $18.9bn, in line with a bounce back in consumer demand and a more favourable economic environment. The 2021 dividend payment of $0.25 per share equated to a dividend yield of 4.5%. HSBC has been consistent with its yields over the past five years.
The company may now also benefit from rising interest rates. In the UK and US, these rates are now at 1.25% and between 1.5% and 1.75%, respectively. More rises may come in July. Interest rates are important for a business like HSBC, because they can dictate how much it can charge for its lending services. These products may include loans and mortgages. The cost-of-living crisis, however, may deter some potential customers from taking on more debt, which could be bad news for HSBC.
Andrew Woods does not own shares in HSBC.
Phoenix Group Holdings
What it does: Phoenix Group Holdings is the largest long-term savings and retirement business in the UK. It offers a range of life and pension products across several brands.
By Harshil Patel. Currently yielding 8%, Phoenix Group Holdings (LSE:PHNX) is my top dividend stock pick for July. With the average FTSE 100 share yielding 4%, Phoenix Group is a breath of fresh air when searching for dividend income.
With consumer price inflation rising to over 9%, it comes close enough to battling rising prices.
2021 was an outstanding year for Phoenix. It delivered record cash generation that allowed for a 3% lift in dividend. With resilient cashflow and a strong balance sheet, I reckon the future looks bright.
It has demonstrated an excellent track record with strong dividend growth over the past decade. Much of that growth came from new acquisitions, but what’s exciting is that this year’s dividend growth arrived organically.
Phoenix is proving to be a growing and sustainable business. Another characteristic I like is its resilience in volatile markets like the one we have currently. It seems its hedging approach might make it more resilient versus many of its peers.
Harshil Patel does not own shares in Phoenix Group Holdings.
Unilever
What it does: Unilever is a fast-moving consumer goods company dealing with branded products in beauty, personal care, foods, refreshment and home care.
By Kevin Godbold. I’m delighted Unilever (LSE: ULVR) appears on my high dividend yield stock screens. The company’s attractions led to the valuation being too high for my taste for years — until now.
Worries about recession, the war in Ukraine and the cost of living crisis have all conspired to drive the stock price down this year. However, in April, chief executive Alan Jope delivered a reassuring update on recent trading. “We are executing well in a very challenging input cost environment,” he said. And he reckons underlying sales growth of 7.3% had been driven by strong pricing.
And that’s excellent news because it means Unilever’s strong brands are maintaining pricing power. That suggests an ability to protect margins in inflationary economic environments.
Meanwhile, Unilever’s financial and trading record is a thing of beauty. And I have confidence the business can maintain its rising dividend stream in the years ahead.
Kevin Godbold does not own shares in Unilever (yet, but likely will do soon!)
British American Tobacco
What it does: Operating in 175 markets worldwide, British American Tobacco manufactures and sells cigarettes as well as other nicotine products.
By Charlie Carman. Unclouded by falling tobacco consumption in developed markets, British American Tobacco (LSE: BATS) is a top FTSE 100 performer in 2022. The share price has increased 30% this year to date.
It’s a true Dividend Aristocrat. British American Tobacco shares offer a 6% dividend yield and shareholder distributions have risen consistently since 1999. In addition, the company announced a £2bn share buyback programme earlier this year.
There are regulatory threats facing this tobacco giant in many key markets. For example, the US Food and Drug Administration recently announced plans to set maximum nicotine levels in cigarettes and other tobacco products.
However, the company aims to counteract such challenges via its reduced-risk vapour products and tobacco-free nicotine pouches. It’s targeting 50m consumers of non-combustible products by 2030.
The tobacco industry’s demise has long been predicted but failed to materialise. I believe British American Tobacco shares can boost my portfolio’s returns for years to come.
Charlie Carman owns shares in British American Tobacco.
Somero Enterprises
What it does: Somero is a manufacturer of laser-guided equipment used to place and screed concrete slab in buildings.
By Paul Summers: I’m biased when it comes to Somero Enterprises (LSE: SOM). I’ve held this high-quality, US-focused company within my S&S ISA for a few years now. Quite a bit of this has to do with the dividend stream it offers.
As I type, Somero is forecast to yield almost 10% in the current financial year. That’s going to take an awful lot of the sting out of galloping inflation. This cash return is also likely to be reasonably covered by profit, meaning it should actually get paid.
One risk I need to continue bearing in mind here is that Somero is undoubtedly a cyclical business. As such, the share price could head lower in the near future if a recession becomes a reality.
However, the stock already trades at less than eight times earnings. So, I suspect/hope a lot of bad news is already priced in.
Paul Summers owns shares in Somero Enterprises.
Grafton
What it does: Grafton is a merchant that sells all sorts of building materials. These include timber, decor, DIY items, and more.
By John Choong. Grafton (LSE: GFTU) is one of the few potential beneficiaries of the government’s new Help to Build scheme. Unlike Help to Buy, the new initiative won’t directly benefit the traditional property developers. This is because the new initiative is only available for houses built by self or custom-builders. Due to Grafton’s excellent relationship with independent builders, it could stand to benefit from the tailwind of the new scheme.
While the group has a manufacturing segment, the bulk of its revenue comes from its distribution businesses. This is where I expect most of the growth to come from. So, if the group’s top line receives a boost from new builds, I expect both its share price and dividend pay out to increase substantially, hence making its current share price cheap. After all, it’s currently trading at a P/E ratio of 9.14. Not to mention, Grafton has healthy profit margins too, which makes it an attractive stock for investors to purchase.
John Choong has no position in Grafton
