Top British dividend stocks to buy for January

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 January!

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Tritax Big Box REIT

What it does: Tritax Big Box REIT owns, manages and develops prime logistics real estate in the UK.

By Paul Summers. Holders of real estate investment trust Tritax Big Box (LSE: BBOX) have endured a torrid 2022. On the flip side, I think now could be a great time for me to begin building a position in a dividend stock I’ve long coveted.

Tritax has benefited from the huge rise in online shopping over the years and now boasts a stellar list of blue-chip clients, including Amazon and Tesco. While the cost-of-living crisis may indirectly (and temporarily) put the breaks on earnings growth, the ongoing need for warehouse space makes the FTSE 250 constituent a great defensive option. After all, things would have to get seriously bad if either of the above clients were unable to pay their rent.

Factor in the near-5% forecast dividend yield and I think there will be far worse places for me to seek passive income in 2023.

Paul Summers has no position in Tritax Big Box REIT.

Foresight Solar Fund 

What it does: Foresight Solar is an investment trust that owns solar photovoltaic and battery assets across the northern (UK, Spain) and southern (Australia) hemispheres. 

By James J. McCombie: Foresight Solar Fund (LSE: FSFL) paid a dividend of 7.05p over the last 12 months. With a share price of 114.6p, that’s a trailing yield of 6.15%. The consensus analyst forecast is for 7.26p in 2023, so the forward yield is 6.3%. Shareholder payouts have increased by 2.6% each year on average 

The dividend looks safe, as it is covered at least twice over by forecasted earnings. The company operates in a growing industry, so expansion should be possible. And, although the set-up costs for solar panels and batteries are high, the income stream from them is typically steady.

However, it’s worth noting that equity raises (but no debt) have been used to fund asset purchases, which could dilute shareholder’s returns down the road: the share count has doubled over the last five years. 

James J. McCombie does not own shares in Foresight Solar Fund

Rio Tinto

What it does: Rio Tinto is the world’s second-largest metals and mining corporation. It earns the bulk of its revenue from selling iron ore to its largest customer, China.

By John Choong. Rio Tinto (LSE: RIO) shares have had a volatile time this year due to the instability surrounding China’s manufacturing activity and property crisis. Consequently, iron ore prices took a hit.

However, the price of the commodity has since rebounded strongly as China looks to reopen and end its zero-Covid policy. Fears of a property market crash have also been abated for the time being as the country’s largest lender has given the green light for projects to go ahead. As such, demand for iron is expected to spike and consequently, Rio’s share price too.

As a result, Rio Tinto’s monster dividend yield — which had previously been in jeopardy of a large cut — is looking a little more secure now, as cash is expected to flow in. Either way, the giant’s balance sheet is robust enough to cover its current yield of 9.4% up to 1.7 times. For those reasons, I’ll be looking to add shares in this dividend stock to my portfolio in due course.

John Choong has no position in Rio Tinto.

Aviva 

What it does: Aviva is the UK’s leading insurance, wealth and retirement business. 

By G A Chester. Chief executive Amanda Blanc has transformed Aviva (LSE: AV). Following her appointment in 2020, she moved at pace to divest non-core international businesses, strengthen the company’s finances, and return value to shareholders. 

She’s now intent on delivering ongoing attractive returns by capitalising on the structural growth opportunities across insurance, wealth and retirement solutions in Aviva’s core markets of the UK, Ireland and Canada. 

In the last half-year results, she said: “Our liquidity and capital position is extremely healthy and we are declaring an interim dividend of 10.3p, in line with our full-year 2022 dividend guidance of c.31p. We are increasingly confident in Aviva’s prospects and anticipate commencing additional returns of capital to shareholders with our 2022 full-year results.” 

The 31p dividend guidance represents a yield of around 7%. Dividends are never guaranteed, but the impressive Ms Blanc exudes conviction in her guiding principle: “Delivering for our shareholders is at the core of our strategy.” 

G A Chester does not own shares in Aviva. 

Direct Line Insurance Group

What it does: Direct Line is a UK general insurer group that’s best known for its motor cover, but also offers business, home and breakdown insurance.

By Roland Head. Direct Line Insurance (LSE: DLG) currently trades with a forecast dividend yield of 10%. Although such a high yield suggests some risk of a cut, I think this payout will be maintained.

Direct Line has suffered a number of one-off pressures this year, mainly due to cost inflation and supply chain problems. Most other motor insurers have reported similar problems, so it’s not just a company issue.

This year’s dividend isn’t expected to be covered by earnings. But CEO Penny James says the payout can be funded with surplus capital. Earnings are then expected to return to more normal levels in 2023.

This guidance was confirmed in November, but it’s still possible that new problems will emerge — or that next year’s recovery will be weaker than expected.

Risks remain. But on balance, I think this 10% yield looks safe enough to make this dividend stock a top buy for January.

Roland Head owns shares in Direct Line Insurance Group.

Games Workshop Group 

What it does: Games Workshop creates and sells tabletop gaming systems, models, and other fantasy-related products. 

By Royston Wild. Finding decent income stocks for dividend growth is more challenging than usual as the global economy toils and corporate profits come under pressure. 

But Games Workshop Group (LSE:GAW) could be a top stock as I’m seeking payout growth. And buying its shares before its half-year report is released on 10 January could be a good idea. 

This is because I’m expecting another encouraging release that could lift its share price higher. Games Workshop sets the standard in the world of miniature wargaming, a hobby where demand tends to be stable even during recessions. 

City analysts expect dividends here to rise over the next two years. They forecast a 244p per share payout for this fiscal year (to May 2023), up from 235p last time out. An even-bigger 257p reward is projected for financial 2024, too. 

These forecasts yield a healthy 3.3% and 3.5% respectively. Note that both these readings are higher than the FTSE 250 average of 3.1%. 

Royston Wild owns shares in Games Workshop Group.

Hargreaves Lansdown

What it does: Hargreaves Lansdown operates the UK largest investment platform. Currently, it has assets under administration of around £120bn.

By Edward Sheldon, CFA. My top dividend stock for January is Hargreaves Lansdown (LSE: HL). It paid out 39.7p per share last financial year (ended 30 June 2022), which equates to a yield of around 4.5% right now.

I’m bullish on Hargreaves Lansdown for several reasons. One is that rising interest rates benefit the company. The higher rates are, the more interest it can generate on customer deposits.

Another is that the stock is currently trading at a very reasonable valuation. Currently, the P/E ratio here is around 16. I see that as an attractive valuation given the company’s growth track record and high level of profitability (it’s one of the most profitable companies in the FTSE 100 index).

A risk to consider here is that a new CEO is coming in soon. He could potentially change the dividend policy.

Overall, however, I like the risk/reward proposition at present.

Edward Sheldon owns shares in Hargreaves Lansdown.

M&G

What it does: M&G manages investments for commercial and personal customers across a variety of markets.

By Christopher Ruane. I continue to own shares in M&G (LSE: MNG). At the current price, if I had spare funds to invest, I would be happy to buy more for my portfolio.

At the moment, M&G offers a 10% dividend yield. The company even raised its interim payout this year, albeit by a modest 2%. It has also completed a share buyback programme that cost half a billion pounds. I think that could boost future dividends,. The firm will be able to pay a higher dividend per share without increasing the total funds spent.

All this depends on the business itself remaining in rude health. I do see risks, such as the recession leading investors to pull money out of their holdings. That could hurt sales and profits.

But resilient long-term demand for financial services and a well-established, trusted brand make me think M&G has a bright future. That bodes well for its dividend.

Christopher Ruane owns shares in M&G.

Smith & Nephew

What it does: Smith & Nephew is a designer and manufacturer of medical devices specialising in orthopaedics, advanced wound care, and sports medicines.

By Zaven Boyrazian. Thanks to the ongoing cost-of-living crisis, many income stocks are seeing their dividends put under pressure. Yet that doesn’t appear to be the case for Smith & Nephew (LSE:SN.)

The firm is a leading supplier of orthopaedics, wound care, and sports medicine products to hospitals and clinics. Regardless of what the economy is doing, healthcare remains critical. And now that Covid-19 has loosened its grip on medical institutions, elective surgeries are returning to fashion, driving up demand for its products.

Today, the shares offer a respectable 2.9% yield. That’s certainly not the most exciting figure. But it’s proven to be remarkably resilient over the years. After all, Smith & Nephew has paid a dividend every year since 1937!

Its highly regulated industry drives up the cost of developing and marketing new products, which are never guaranteed to succeed. Despite this risk, the business looks like a solid buy-and-hold opportunity for my portfolio today.

Zaven Boyrazian does not own shares in Smith & Nephew.