Starting right now, and building a new portfolio of dividend shares for 2023, what might we buy? Thinking of dividend shares tends to draw us to FTSE 100 stocks. But I see some attractive dividends from the FTSE 250 too.
I think diversification is a pretty good idea for any new portfolio starting today. I’d say it’s wise at any time. But we’ve seen in recent years how individual sectors can suffer disproportionately during downturns. So I rate diversification as especially important right now.
I’m not recommending a portfolio here, as investors need to do their own research. But as a first pass, I’d be happy to choose from the following 10 stocks.
Income shares
| Company | Recent price | 12-month change | Dividend yield |
| Rio Tinto (LSE: RIO) | 5,853p | +20% | 9.1% |
| Barratt Developments (LSE: BDEV) | 425p | -43% | 9.1% |
| Jupiter Fund Management (LSE: JUP) | 135p | -47% | 8.0% |
| Direct Line Insurance Group (LSE: DLG) | 229p | -18% | 9.5% |
| National Grid (LSE: NG) | 1,023p | -3.5% | 5.2% |
| Imperial Brands (LSE: IMB) | 2,101p | +30% | 6.8% |
| City of London Investment Trust (LSE: CTY) | 417p | +3.9% | 5.8% |
| ITV (LSE: ITV) | 77.7p | -30% | 6.6% |
| Barclays (LSE: BARC) | 166p | -11% | 3.9% |
| Aviva (LSE: AV) | 453p | -16% | 6.7% |
The dividend yields shown are forecasts, so there’s no guarantee they’ll be maintained. Rio Tinto, for example, has cut its dividend. Further reductions might happen in the short term too.
Dividend cuts?
Housebuilders, also, might be in for dividend cuts as the property market is squeezed. But over the long term, I can only see strong demand for raw materials and houses, generating healthy cash flow to pay those dividends.
I have two insurance shares in the list. But they’re very different businesses. Aviva is big in savings, investments and retirements products. Direct Line, meanwhile, sticks to straight general insurance products.
There’s a diversification boost from City of London Investment Trust. It invests in UK equities, and counts Shell, Diageo, and AstraZeneca among its top 10 holdings. So that’s diversification from a single investment.
Bigger yields
Many share prices have fallen over the past 12 months. That suggests a risk of the downtrend continuing. And if dividends are cut, it really could happen. But I remain convinced that buying dividend shares for long-term income during a downturn can be profitable.
Whatever dividends the stocks pay in the years to come, investors will have locked in a higher yield on any shares they buy while they’re down.
Next steps
Before I’d make any actual purchases, I’d check out a few other things. I want to know how well each company’s earnings have covered its dividends over the long term. How visible are a company’s future earnings is another question to ask. And I want to check management’s approach to progressive dividends, ideally with a focus on keeping debt down first.
But however I choose my income stocks, I do think narrowing down the selection to 10 or so initial favourites, from a diverse choice of sectors, is a good start.
