Every month, we ask our freelance writers to share their top ideas for dividend stocks with you — here’s what they said for July!
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Diageo
What it does: Diageo is the brewer and distiller behind a host of premium drinks worldwide, from Guinness to Johnnie Walker.
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By Christopher Ruane. With a 3.2% dividend yield, Diageo (LSE: DGE) might not look like a hot dividend share at first glance.
But from the perspective of how it can fund future dividend growth, I like the share a lot. This is a company that has grown its payout per share annually for well over three decades. Those are not tokenistic increases, either: the dividend has increased by 5% in both of the past couple of years.
High demand, premium positioning and unique products give the company strong pricing power. The business model generates sizeable free cash flows: £1.8bn last year alone. I therefore expect Diageo can raise its dividend for years to come.
Weakening sales in Latin America concern me. They could foreshadow a broader slowdown in premium drinks demand as global economic weakness bites. As a long-term investor, though, I think the outlook for Diageo is promising.
Christopher Ruane does not own shares in Diageo.
HSBC
What it does: HSBC is an international bank with a presence in over 60 countries.
By Charlie Keough. I already own HSBC (LSE: HSBA) shares but at their current price, I’m incredibly tempted to buy some more in July.
The star of the show is its 7.1% dividend yield. Last year its payout grew by 97% to 61 cents per share. In its Q1 results, it announced a special 21 cents per share dividend after selling its Canadian business. Accounting for that, the stock yields a whopping 11.8%.
HSBC shares also look cheap. They trade on 7.5 times earnings, comfortably below the FTSE 100 average. Its price-to-book ratio is 0.9.
The biggest threat to the firm is its focus on Asia. A slowdown in Chinese economic growth could weigh down on the stock in the months to come.
But moving past that, I’m bullish on HSBC. Its shares are cheap, and its yield is high. That’s the sort of stock I like to buy. If I have the cash, I’ll be adding to my position this month.
Charlie Keough owns shares in HSBC.
Legal & General Group
What it does: Legal & General Group sells a wide range of life insurance, retirement and investment products.
Legal & General Group (LSE:LGEN) shares have long been popular with investors seeking an extraordinary passive income. Following recent heavy price weakness, it looks even more appealing from a dividend perspective.
The FTSE 100 company now carries an enormous 9.5% dividend yield for 2024. And for 2025 and 2026, these figures improve to 10.1% and 10.7% respectively.
Investors have been spooked by Legal & General’s intention to cool future dividend growth. It announced plans in mid-June to raise annual payouts by 2% between 2025 and 2027, down from 5% previously.
I think the market is overreacting here. Not only are dividends still expected to grow. But the financial services giant plans to “return more to shareholders” overall by launching a series of share buybacks. This begins with a £200m repurchase this year.
There’s always a chance that Legal & General may struggle to hit these goals if the economy struggles and profits suffer. But a cash-rich balance sheet suggests the firm could still make good on its revised capital allocation policy, even if earnings disappoint.
Royston Wild owns shares in Legal & General Group.
Phoenix Group Holdings.
What it does: Phoenix calls itself the UK’s largest long-term savings and retirement business, with 12m customers and £280bn of assets under administration.
By Harvey Jones. Maybe I’m naive, but I just can’t get past the fact that FTSE 100 insurance conglomerate Phoenix Group Holdings (LSE: PHNX) yields 10.2% today.
I know double-digit yields are highly precarious, and I know there are a few other reasons to invest in the stock, which is down 4.05% over one year and 24.95% over five. But I still thinks it’s a brilliant buy
The market may just be coming round to my point of view, with the shares springing into life in recent days.
What’s taken them so long? I’ve just run some figures, and Phoenix has a solid track record of increasing its dividend per share for the last decade. In 2014, it paid 36.75p per share. By 2023, that had risen to 52.65p.
In March, the board pledged to offer a “progressive and sustainable dividend policy” going forward.
Analysts expect the yield to hit 10.5% in 2024 and 10.8% in 2025. The business is paying down debt, too.
No dividend is guaranteed. Some investors will see this as a value trap. The share price may continue to flounder. But I’m an optimist.
Harvey Jones owns shares in Phoenix Group Holdings.
