Slow and steady wins the race! This is my view when it comes to dividend shares.
What I mean by this is I won’t be fooled by flash in the pan ultra high yields, but focus on quality businesses with a decent level of return, and the prospect of regular and consistent payouts.
With this in mind, two picks which I feel fit this criteria are Unilever (LSE: ULVR) and Diageo (LSE: DGE).
Here’s why I’d buy these stocks for returns if I had the cash to spare today.
Unilever
The consumer goods behemoth is a stock I like the look of for its solid brand power, vast presence, market dominance, and previous track record.
Many of its premium goods are popular, including Ben & Jerrys, Comfort, CIF, Cornetto, Domestos, and Dove, to name a few. On a purely anecdotal note, I use many of Unilever’s products personally.
One of my biggest worries when it comes to Unilever is economic downturns and turbulence. Like recently, higher inflation and interest rates can lead to higher costs for the business, as well as consumers looking to make their cash stretch further. A rise in supermarket essential ranges, and budget supermarkets offering consumers an alternative, could hamper Unilever’s earnings and returns.
Conversely, Unilever’s vast brand portfolio and reach of around 190 countries can’t be discounted. It has led the business to success over many years, as well as providing shareholder value. Such a vast presence allows the business to offset weakness in one territory, and make up for it in another.
Next, Unilever’s recent change of tack to dispose of lesser performing brands, and invest in those doing well is a great move, in my view. It could make the business leaner and more profitable.
Finally, the shares offer a dividend yield of just under 3%. However, I am aware that dividends are never guaranteed.
The shares may not catapult my holdings to new heights, but could contribute to my aim of building real wealth through capital and dividend growth.
Diageo
The premium spirit maker is similar to Unilever in that it possesses an excellent market position, presence, and a good track record.
When looking at bearish aspects, these similarities continue. Turbulence across the world has hurt demand for premium spirits. So much so that Diageo issued a profit warning due to sales dropping sharply in Latin America and the Caribbean. Let’s be honest, alcohol is a luxury, so in times of austerity and difficulty, it isn’t a priority. Plus, Diageo has to contend with costs such as fuel duty which other firms in other sectors don’t. These aspects could hurt earnings and returns.
However, I reckon Diageo’s dominant position could serve it well for years to come. Brand and pricing power could help boost earnings when volatility dissipates.
Plus, the shares now trade on a price-to-earnings ratio of 18. This is lower than its historical average of over 22. A better entry point is enticing.
Finally, a dividend yield of 3.4% is also decent, and with bright future prospects, I like the look of the shares.
