Every month, we ask our freelance writers to share their top ideas for dividend stocks to buy with you — here’s what they said for August!
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Glencore
What it does: Glencore is one of the world’s largest natural resource companies, mining the metals that will enable net zero to become a reality.
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By Andrew Mackie. As the yield on a risk-free 10-year government bond stands at over 4%, I am keen to hunt down dividend stocks that offer substantially more than that rate, to reflect the additional risk I am taking. Currently yielding 10.5%, Glencore (LSE: GLEN) is one of only a handful of members of the FTSE 100 that offer over twice that rate.
Glencore sets its baseline dividend policy based on cash flows from the previous year. Given the bumper set of results in 2022, there is always a possibility that it is unable to sustain its yield in future years. However, I am comfortable with that risk given the long-term growth story unfolding.
The company is at the forefront of producing the electrification metals required to make net zero a reality. Copper is a key metal in this respect.
Commentators and industry experts talk a lot about the coming copper deficit. However, I still believe that most investors don’t genuinely appreciate what’s coming.
The company estimates that by 2030, the copper deficit will be around 50m tonnes. Turning the taps on though to meet this shortfall won’t be easy. Not only is it becoming harder to find world-class copper discoveries, but additional risks also exist. These include: ESG mandates, land acquisition, permitting issues, labour shortages and geopolitical risks.
As the only company that produces, sources, markets, distributes and recycles copper, I am expecting it to pay healthy dividends for a long time to come.
Andrew Mackie owns shares in Glencore.
Legal & General
What it does: Legal & General is a UK-based financial services provider with businesses across retirement, insurance, and investments.
By Harshil Patel. Legal & General Group (LSE:LGEN) almost offers a 9% dividend yield right now, and it’s my top dividend stock for August.
It’s important to note that very high yields might not be sustainable. They can often mask a temporarily suppressed share price or a risk of a dividend cut.
But I’m not too concerned about this. That’s because L&G has an incredibly long track record of paying dividends. Not only that, but it has a history of growing its payments.
Over the past decade, despite lacklustre share price growth, its annual dividend payments have doubled. In addition, its dividend cover has remained stable at around 1.8x. That suggests it can comfortably afford its chunky payout from earnings.
In the near term, a weaker economy could limit growth in its investment-related businesses.
But long-term trends look promising for L&G.
An ageing population bodes well for its retirement business. And its strong and established brand should make it difficult for competitors to take market share.
Harshil Patel does not own shares in Legal & General Group.
Legal & General
What it does: Legal & General is a FTSE 100 savings and insurance firm. It’s one of the UK’s largest pension providers and asset managers.
By Roland Head. Legal & General Group (LSE: LGEN) stock offers a dividend yield of nearly 9%. I believe this payout should be sustainable.
Legal & General has generated an average return on equity of nearly 20% per year since 2008. The company has become a market leader in pension outsourcing deals, and results in recent years have showed strong cash generation.
I think the main risk is that the business is complex and hard to value. Some of its assets — such as property — are not liquid. Outside shareholders can’t really dig into the numbers.
On the other hand, Legal & General has been in business since 1836 and has paid dividends every year since at least 1987 (the earliest I can find records).
The shares look very cheap to me, trading at 1.2 times net asset value and on just eight times forecast earnings. I’ve recently bought more for my portfolio.
Roland Head owns shares in Legal & General.
Primary Health Properties
What it does: Primary Health Properties makes money by leasing primary care facilities. Around 89% of its rent roll comes from the NHS.
By Stephen Wright. I think Primary Health Properties (LSE:PHP) looks like a really good investment at anything below £1 per share. That gives it a dividend yield of 6.7% that I think is worth the inherent risks.
The company leases primary care facilities. It scores well on a number of key metrics I look at when it comes to real estate investment trusts (REITs).
Occupancy rates are at 99.7% and the business collected 98% of the rent it was due last year. The vast majority of its leases still have 5-30 years left to run.
One of the biggest issues is debt. Primary Health Properties has a lot of it, but this is offset by swaps that limit the risk of rising interest rates and 94% of its debt is fixed or hedged.
I see this as an investment with more risk than I’d usually take. But I think there’s also above-average reward potentially on offer here.
Stephen Wright does not own shares in Primary Health Properties.
