The best dividend shares I’d buy this month offer an additional kicker. Not only would I get a chunky passive income from the dividends but I reckon the value of the shares could rise too.
My top pick is mining giant Rio Tinto (LSE:RIO). A few months ago, I included it in my ‘top dividend shares with growth potential’ list. Since then, I’m pleased to say that its shares have gained by almost 40%. Now, what’s interesting is that today its dividend yield is still a whopping 9%. Granted it’s not the 11% it was a few months ago, but it’s still one of the greatest dividend yields in the FTSE 100.
After such a strong performance in just a few months, should I still buy these shares? My answer to that question is yes. Rio shares have benefited from a general rise in metal prices. Iron ore accounts for two-thirds of its sales, and it’s up by almost 20% this year.
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Rising commodity prices
Commodity prices are currently being pushed higher from the tragic events in Ukraine. My best guess is that they could grind higher over the coming months as Russia is one of the largest iron ore producers in the world. Any further supply constraints could extend prices even more. That said, geopolitical factors can be fast-moving and any sign of resolution could pull metal prices lower in the short term.
But my choice for Rio isn’t only due to rising commodity prices. It’s a high-quality, cash-generative and profitable company. One measure of quality that is frequently mentioned by popular investor Terry Smith is return on capital employed (ROCE). I like companies with a ROCE of over 15%. For Rio, that figure is 33%. Overall I’d say that it could be an excellent long-term holding for me, and one that certainly provides some balance in my relatively tech-heavy Stocks and Shares ISA.
‘Slow n steady’ dividend shares
On the topic of balance, I’d also consider electricity provider SSE (LSE:SSE). Utility companies generally tend to make dull investments in my view. Their share prices rarely perform well in boom times and bull markets. That said, they can offer outperformance and relative safety in times of recession or market corrections. Also, they’re usually reliable dividend payers. For instance, SSE has paid regular dividends for almost three decades. And like many utility shares, it offers an above-average dividend yield. It currently pays 5%. That’s a decent premium to the average FTSE 100 yield of 3.6%.
I’m becoming more cautious regarding the state of the global economy. Geopolitical risks coupled with rising inflation, oil prices, and interest rates are cautionary. For that reason, I’d want to own some dividend shares that could offer me a margin of safety. I reckon SSE shares are one of the ways I could achieve that goal. Like Rio, SSE also demonstrates its quality characteristics with a double-digit return on capital employed and double-digit profit margins. It’s also one of the leading generators of renewable electricity in the UK. Overall, I’d definitely consider buying these shares this month.
