I think there are many reasons why dividend stocks are a smart buy at the moment. Low interest rates on my cash balances, high inflation negatively impacting my returns, and generous dividend yields are a few that spring to mind. When trying to figure out the top dividend stocks that merit an investment, here are a couple I’d consider buying right now.
An established top dividend stock
First up is Legal & General (LSE:LGEN). The business has been established for over 100 years, offering a wide range of financial services. At the moment, it specializes in pensions, retirement products, and asset management.
I await the full-year results that are due out in March. The half-year results released back in August were strong, with operating profit up 14% on the same period in the previous year. An important factor for a top dividend stock is growth in dividend per share. The interim dividend of 5.18p was up 5% on the dividend from H1 2020.
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As a result, the current dividend yield is 5.94%. Given the consistency of the business model, I’d expect full-year results to show further steady growth. This bodes well for a continuation of the dividend payout in 2022. Of course, dividends are never guaranteed.
Over the past year, the share price is up almost 10%. Looking forward, there’s a potential risk that the company might struggle with the asset management element. Many are predicting that 2022 will be a much harder year to navigate financial markets. If the assets under management aren’t selected carefully, LGEN might see investor outflows if performance isn’t very good.
Strong outlook from a homebuilder
The second company I think is a top dividend stock is Barratt Developments (LSE:BDEV). The share price is up 9.8% over one year. The company cut the dividend during the pandemic, but was able to increase it last year thanks to strong results. At the moment, the dividend yield is 3.98%.
Some might criticize this choice, saying that with inflation above 5%, the dividend yield here still offers me a negative real return. This is true and is a risk when considering the stock on its own. However, I’d add this top dividend stock to my overall portfolio. Given that this could include LGEN (yielding almost 6%), and other higher yielding ideas, my average yield should be higher than 5%.
The main reason why I like the stock is that the outlook is positive. Therefore, I wouldn’t be surprised if the dividend per share increases in the next year or so. The forward order book is strong, highlighted in a trading update in October. The update noted that “total forward sales (including JVs) as at 10 October 2021 totaled 15,393 homes (11 October 2020: 15,135 homes; 13 October 2019: 12,963 homes)”.
This growth year-on-year gives me confidence that the business is carrying forward momentum. This should enable the dividend to be sustained.
I’m considering buying both dividend shares as we start the new year.
