As this year draws to a close, I’m building a shopping list of the best dividend shares to buy. If things go to plan, a lump sum spent on some choice dividend stocks will give me passive income I can reinvest to significantly grow my portfolio.
I’m looking for shares to provide me with a large and growing passive income over time. What’s more, I’m wanting stocks that trade on rock-bottom price-to-earnings (P/E) ratios. Companies with low valuations could provide me with big capital gains over time alongside decent dividend income.
Here are two such stocks I’m considering today:
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| Dividend share | Dividend yield for 2025 | Forward P/E ratio for 2025 |
|---|---|---|
| H&T Group (LSE:HAT) | 5.3% | 6.7 times |
| M&G (LSE:MNG) | 10.3% | 8.1 times |
Dividends are never guaranteed, but if broker forecasts are accurate, a £10k lump sum invested equally across these dividend heroes would provide a £780 passive income next year alone.
Here’s why I’m considering them for my Stocks and Shares ISA for 2025.
H&T Group
Pawnbrokers such as H&T Group could prove perfect shares to buy in 2025. With inflationary pressures persisting and the UK economy struggling, money lenders like this could remain in high demand.
Latest financials here showed pledge lending up 14% in the first half of 2024, at £146m.
As the country’s largest pawnbroker, H&T’s taking full advantage on the favourable trading environment. It had 281 stores up and running as of June, up by three from the start of 2024. And it plans to continue expanding, targeting total openings of eight to 12 this year alone.
A strong balance sheet means the company has scope to continue expanding while also paying a generious dividend. It had net assets of £181m at the halfway point of the year. And its net-debt-to-EBITDA ratio was a manageable 2.6 times. This enabled the interim dividend to rise 7.7% year on year.
As with any company, investing in H&T involves taking on risk. In this case, I’m wary that the sliding gold price could have a big impact on profits if it continues.
But on balance, I think the cheapness of its shares still makes it one for me to consider.
M&G
While H&T tends to thrive in difficult conditions, financial services businesses can suffer in periods of low growth and stubborn inflation.
In the case of M&G, net inflows stood at a significant £1.5bn in the first six months of 2024. The FTSE 100 firm faces huge uncertainty going into the new year then, given the tough economic outlook. But I don’t believe this will impact its ability to continue paying a large and growing dividend.
This is thanks to its impressive cash generation and large capital reserves. As of June, M&G Solvency II capital ratio was 210%, more than double regulatory requirements and up 7% year on year.
In a further encouraging sign, the business also lifted its cash generation at the half-time mark for 2022-2024, to £2.7bn from £2.5bn previously. Consequently, M&G interim dividend was lifted to 6.6p per share from 6.5p a year earlier.
This is a share I’m considering buying to hold for the long term. I think demographic changes could drive demand for its wealth, savings and protection products through the roof. And profits and dividends may follow.
