As we head towards the end of Q3, I want to try and get myself ready for the last portion of the year and beyond into 2022. With expectations for inflation to remain at least at 2% over this period, I want to look to allocate some funds to top dividend stocks. In this way, the income received can help me to offset the erosion from inflation. So with £1,000, here are two ideas I like.
A bumper start to 2021
Admiral Group (LSE:ADM) is a UK-based insurance company. Straight off the bat I can see why this is a top dividend stock that appeals to investors. It has a clear dividend policy that aims to pay out 65% of post-tax profits to shareholders. Therefore, as long as the outlook seems good fundamentally, I shouldn’t have any concerns about dividends drying up.
In my opinion, the outlook for Admiral is promising. It had a bumper H1, shown in half-year results just out. Profit of £482m was up 76% on the same period last year. This was driven in part by a 12% increase in customer numbers. Another driver behind this was simply a lack of claims, particularly from car drivers. Given H1 included a period of lockdown restrictions, this doesn’t surprise me.
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One risk here is that clearly I shouldn’t be expecting results to stay this positive going forward. I imagine insurance claims from all divisions will increase now that restrictions have been lifted. This will put downward pressure on growth. I don’t expect this to be a game-changer though, as a normal level of claims should have been factored-in to the business model.
The dividend yield currently is 4.15%, with the FTSE 100 average yield at 3.39%. I could target higher yields, but I think Admiral is a top dividend stock due to the sustainability of the dividend going forward.
A top dividend utility stock
The second stock I’m considering is National Grid (LSE:NG). The company provides gas and electric to UK consumers mostly, although it does have some operations in the US. The current dividend yield is 5.11%. When talking about sustainability of dividends, National Grid gets a tick in the box from me.
This is because regardless of the economic landscape, National Grid is able to provide consistent results. For example, during the last financial year, it noted only a 3% fall in operating profit due to the pandemic. This was mostly around operational issues, rather than a material shift in lower demand from customers.
I expect National Grid to perform well going forward. One point I think that could really help it is the push towards clean energy. It’s committed to investing £30bn-£35bn by 2026 in this growing area. Investors who are specifically targeting stocks with these aims will likely look to buy in, irrespective of dividend.
One risk I see is the proposed measures by the Government to replace the company with an independent energy firm for the role of energy systems operator. It does have a conflict of interest here, but losing out on having a voice in this regard could be damaging.
Yet overall, I think both National Grid and Admiral Group can be classified as top dividend stocks and am considering buying shares in both.
