3 UK dividend stocks I’d buy in October

The UK stock market is home to many great dividend-paying companies. Here are three UK dividend stocks Edward Sheldon likes right now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The UK stock market is home to many great dividend-paying companies. Whether you’re looking for high yield, or dividend growth, there are plenty of opportunities.

Here’s a look at three UK dividend stocks I’d buy in October.

Strong high-yield play

One UK dividend stock that stands out to me as a bargain right now is Legal & General (LSE: LGEN). Its share price has taken a big hit this year and it currently trades on a forward-looking P/E ratio of just 6.8. The prospective dividend yield on offer is a high 9.3%

For a long time, I’ve seen Legal & General as one of the FTSE 100’s best high-yield plays. Unlike many other high-yield stocks, LGEN actually has plenty of growth potential. Recent news from the company has reinforced my view. While a large number of other FTSE 100 companies have suspended, cancelled, or cut their dividends this year, L&G has maintained its payout.

One thing that looks interesting here is on 25 September, the chairman purchased 41,974 shares. This is a good sign, in my view. It suggests the insider is confident about the future and sees the stock as currently undervalued.

All in all, I see a lot of appeal in Legal & General right now. I’d buy this dividend stock today.

Top UK dividend stock

If dividend safety is your focus, I’d take a look at consumer goods company Reckitt Benckiser (LSE: RB). It doesn’t offer the highest yield. Currently, the prospective dividend yield is just 2.3%. However, in my view, this is one of the safest dividend stocks in the entire FTSE 100.

There are a few reasons I see RB’s dividend as very safe. Firstly, the company – which focuses on health and hygiene – is pretty much recession proof. Consumers buy its products irrespective of economic conditions. Secondly, its hygiene sales are booming due to Covid-19. I expect this trend to persist for a while. Finally, the dividend coverage ratio – a key measure of dividend safety – looks robust at 1.8.

Reckitt shares are a little pricey. Currently, the forward-looking P/E ratio is about 24. Yet given the global focus on hygiene, I think the stock can climb higher. Barclays has a price target of 9,000p. That’s about 17% above the current share price.

Value opportunity

Finally, I also think FTSE 100 packaging company DS Smith (LSE: SMDS) is worth a look right now. It has been a solid dividend payer in the recent past. However, it suspended its payout earlier in the year due to Covid-19 uncertainty. Recently though, it announced it plans to reintroduce its dividend shortly.

The reason I see appeal in DS Smith is that I’m very bullish on the online shopping theme. In the UK, the percentage of overall retail sales represented by online sales has jumped from approximately 6.5% to around 20% over the last decade. Covid-19 is likely to accelerate the trend. Packaging companies are a great way to get exposure to the theme.

DS Smith has plenty of exposure to e-commerce. As a result, the business hasn’t been impacted badly by the coronavirus. However, its share price has still taken a large hit this year. I think buying the stock now, while it’s still beaten down from Covid-19 uncertainty, could be a smart move. The P/E ratio using next year’s earnings forecast is just 10.4.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Legal & General, Reckitt Benckiser, and DS Smith. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »