I’d love to buy three dividend shares for my diversified long-term portfolio.
But all my funds are invested, so they’ll have to stay on my watchlist for the time being.
Fast-moving consumer goods
The first is fast-moving consumer goods business British American Tobacco (LSE: BATS). With the share price near 2,606p, the forward-looking dividend yield is a whopping 9.5% for 2024.
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So what’s wrong? After all, yields above 7% sometimes prove to be more of a warning than an opportunity for investors.
One downward force is likely to be the trend towards ethical investing and away from businesses such as cigarette producers. If the big investment institutions have been dumping the shares, the stock price would likely have suffered.
Another possible reason for the weakness might be that the tobacco industry faces tough regulatory scrutiny. And rules may change to put the company’s business model under pressure.
Then there’s the long-term decline of tobacco smoking. And the big debt pile on the balance sheet built up by the business on the back of its consistent trading over the years.
All those risks exist. But the valuation looks attractive and the firm has a strong multi-year record of consistent cash flow and shareholder dividends, so I’m tempted.
Energy
But I’d also go for some shares in energy company National Grid (LSE: NG). The company operates regulated energy businesses on both sides of the Atlantic. And the monopoly electricity transmission grid in the UK is part of its UK assets.
With the share price near 1,020p, the forward-looking dividend yield is around 5.8% for the trading year to March 2025. And that’s attractive, but the business does come with risks.
For example, the sector is heavily regulated. And National Grid must spend millions on improving, maintaining and optimising its infrastructure each year. One consequence is the big debt load on the balance sheet.
So the firm must balance between the servicing of its debt interest and compensating shareholders with the dividend. And it wouldn’t take much change in policy from the lawmakers to inhibit the company’s ability to pay dividends.
However, there’s a decent multi-year dividend record with a compound annual growth rate running near 4%.
On balance, I’d embrace the risks to lock that payment into my portfolio.
Financial services
But I’d also consider financial services provider Legal & General (LSE: LGEN).
Its operations are well diversified within the financial sector and it has potential for further expansion abroad. However, the company is exposed to the cyclical risks of the wider economy.
And that might be one reason for the low-looking valuation. With the share price near 231p, the forward-looking dividend yield is around 9% for 2014. And that’s so big it makes me wonder whether there is something wrong with the business.
However, the company has a fine multi-year dividend record. And it kept up payments even through the pandemic years when many other businesses didn’t. I think that outcome speaks well of the resilience in the business model.
The multi-year compound annual growth rate of the dividend is running just below 5%. And I’m bullish about the potential for world economies to thrive from where they are now. So I’d want to have that growing stream of dividends working for me in my own portfolio.
