One of the good things that can be said for the FTSE 100, and to a lesser extent the UK stock market as whole, is that it has a lot of dividend stocks. High yields (pandemic aside) tend to be a feature of the energy, commodities and banking-heavy UK market. At the time of writing the FTSE 100 average dividend is just under 3.5%. That high level of income is often seen as attractive when interest rates, for now at least, remain at record lows just above zero.
I like the look of these two dividend stocks in particular as they have the potential for dividend growth, offer good yields and should be able to grow.
A top dividend stock
While there can be little doubt the prospect of rising interest rates could hit demand for mortgages and new homes, I like the look of housebuilder Redrow (LSE: RDW). Recently the group said that 2022 full-year results were expected to be close to pre-Covid levels. Redrow said the value of net private reservations in the 19 weeks to 5 November was 2% higher year-on-year at £672m. This positive update is consistent with statements from its peers.
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Investors are perennially concerned about the availability and affordability of mortgages. That’s one of the reasons why housebuilders’ shares seem to always be cheap.
But Redrow looks to be a very solid dividend stock. The current yield is around 4%. In the period preceding the pandemic, dividend growth was strong and it’s now bouncing back. This combination of dividend yield and dividend growth is attractive.
I already have Persimmon shares but could be tempted to buy Redrow as well.
A more volatile option
CMC Markets (LSE: CMCX), the spread-betting company, operates in an inherently more volatile market than Redrow. Yet I like the company. It has operations overseas, most notably in Australia where it has significant market share as a stockbroker. The founder-owner of CMC Markets holds a significant stake, so the interests of management and ordinary shareholders are well aligned.
When it comes to the dividend, it’s currently offering an eye-watering yield approaching 12%. I think this should normalise soon as the share price will likely recover from a sell-off (the shares have been falling against tough 2020 comparisons). CMC Markets does tend to be a high-yielding share. The issue is it operates in an industry where earnings can be unpredictable so it’s not the most consistent by any means for dividend growth. Overall though, I like the company and I think it now looks cheap and offers a high income. I might very well buy.
It’s worth remembering that dividends are just a part of total return. They shouldn’t be separated from growth because if a share price falls heavily no amount of dividend can realistically make up the difference. That’s why I want to concentrate on quality dividend stocks like Redrow and CMC Markets. I’d be happy at the end of the day to add both to my investment portfolio.
