We asked our freelance writers to share the top dividend stocks they’d buy in October. Here’s what they chose:
Alan Oscroft: BP
My top dividend stock is BP (LSE: BP). Yes, a company in a sector under intense environmental pressure and whose shares are down 35% over two years. Oh, and a company that’s been forced to slash its dividend.
BP rebased its dividend in August 2020 when it launched its Net Zero strategy. But at the time, the company spoke of a “resilient dividend of 5.25c per quarter.” That’s 21c per year, or 15.5p, for a yield of around 4.5%. And BP has already upped its 2021 Q2 dividend to 5.46c.
Now, it’s all about whether BP can sustain the dividend in the coming years. And in the oil business, that’s far from guaranteed. But I can see BP doing everything it can to avoid another cut any time soon.
Alan Oscroft has no position in BP.
Zaven Boyrazian: Somero Enterprises
Earlier this year, the US government unveiled its $2trn infrastructure plan, creating an enormous opportunity for Somero Enterprises (LSE:SOM). This company is a designer of concrete-laying screed machines. That’s hardly the sexiest business. But it’s saving construction companies a fortune by eliminating the need for large workforces.
Revenues have slowed these past two years, following terrible weather in 2019 and the pandemic in 2020. However, these woes appear to be over, with rapid growth seemingly on the horizon. Even with the recent boost in its share price, the stock still has a 4.2% dividend yield.
It’s certainly not the only player in this space, with its rivals trying to steal market share. However, personally, I think Somero can hold and expand its ground. That’s why it’s already in my portfolio.
Zaven Boyrazian owns shares in Somero Enterprises.
Rupert Hargreaves: Taylor Wimpey
The UK housing market is firing on all cylinders. I want some exposure to this trend. One of the country’s largest publicly traded homebuilders is Taylor Wimpey (LSE: TW).
This firm is also an income champion. In 2019, the stock paid out a total of 18.3p per share in regular and special dividends, giving a yield of around 10%.
The homebuilder stopped its payout during the pandemic, but it has now restored distributions. Analysts have pencilled in a 2.6% yield for the year ahead, but I think this is conservative based on the firm’s history. That is why I would buy the stock.
A higher payout is not guaranteed. Risks such as rising costs could eat into Taylor’s profit margins, restricting its dividend potential.
Rupert Hargreaves does not own shares in Taylor Wimpey.
G A Chester: Polymetal International
Based on the current-year analyst earnings and dividend consensus, FTSE 100 gold miner Polymetal (LSE: POLY) is on a sub-10 P/E with a yield in excess of 7%. The yield rises to over 8% on next year’s forecast.
Of course, these are just forecasts and movements in the price of gold can change them for better or worse. Also, as dividends are declared in dollars and converted to sterling, there’s currency risk for UK investors.
Having said that, I think the current P/E and dividend yield are remarkably generous for this high-grade and low-cost producer. This makes it my top income pick in the market right now.
G A Chester has no position in Polymetal International.
Edward Sheldon: Tritax Big Box REIT
My top dividend stock is Tritax Big Box (LSE: BBOX). It’s a FTSE 250 real estate investment trust that lets out large-scale logistics warehouses to major retailers such as Amazon, Tesco, and TK Maxx. It currently offers a prospective yield of around 3.1%.
BBOX is benefitting from the rapid growth of e-commerce. In its recent H1 results, it advised that it was seeing “unprecedented demand for prime logistics space.” Looking ahead, the company should prosper as the UK e-commerce industry continues to grow.
One risk to consider here is that, as a real estate investment trust, the company sometimes needs to raise capital to support growth. This can hit the share price in the near term. I’m comfortable with this risk though. I think the long-term story here is very attractive.
Edward Sheldon owns shares in Tritax Big Box and Amazon.
Paul Summers: BAE Systems
Defence giant BAE Systems (LSE: BA) would be a priority buy for me if I were looking to build a portfolio of income-generating stocks. A potential 24.6p per share return in FY21 gives a yield of 4.3% at the current share price. That’s higher than the 3.5% offered by the FTSE 100 index. Naturally, it’s also far higher than the ludicrously low 0.6% offered by the best instant access Cash ISA.
Yes, I could get even more from other stocks. However, BAE’s total payout should be nearly twice covered by profits, making it more secure than most. While defence spending can be notoriously lumpy, it’s worth noting that dividends have also been increasing every year since 2005.
Paul Summers has no position in BAE Systems
Kevin Godbold: National Grid
In May, National Grid‘s (LSE: NG) chief executive, John Pettigrew, delivered an upbeat assessment of the company’s prospects. He reckons the 2021 acquisition of Western Power Distribution (WPD) will “ensure” National Grid is “at the heart” of the energy transition in the UK.
WPD is the UK’s “largest” electricity distribution business. And Pettigrew expects the move to “enhance” National Grid’s future growth profile. But it’s been a stalwart dividend-payer for years, with a unique position in the UK’s energy infrastructure and a solid operation in the US.
With the share price near 900p, the forward-looking dividend yield is around 5.7% for the trading year to March 2023. And I’d want to make the stock a core component of a dividend-focused portfolio.
Kevin Godbold does not own any National Grid shares.
Royston Wild: Residential Secure Income
I think investing in a classic defensive share could be a good idea as concerns over global stagflation grow. One UK share from this bracket I’d happily buy is Residential Secure Income (LSE: RESI). This company works alongside local councils and housing authorities to provide rental properties. Its services are therefore in high demand regardless of broader economic conditions.
I also like this particular property stock as it’s a real estate investment trust (REIT). This means it’s obligated to distribute at least nine-tenths of annual profits to its shareholders through dividends.
Residential Secure Income carries a mighty 4.7% dividend yield right now. And it trades on a rock-bottom price-to-earnings growth (PEG) ratio of 0.5, too. I think it’s a top dividend stock for value lovers like me to buy.
Royston Wild does not own shares in Residential Secure Income.
Christopher Ruane: Imperial Brands
With another dividend paid last week, Imperial Brands (LSE: IMB) continues to be an attractive quarterly passive income stream in my view. Its yield of over 8% is among the highest of any large listed British company.
The high yield, even after a cut last year, may signal risk. Smoking is declining in many countries, yet Imperial is doubling down on cigarette promotion in key markets. If cashflows sink, dividends will ultimately follow. For now, I’m prepared to accept that risk in my portfolio for the attractive yield.
Christopher Ruane owns shares in Imperial Brands.
Harshil Patel: Phoenix Group
My top dividend stock for October is Phoenix Group (LSE:PHNX). This pensions and insurance provider might not be a household name, but it certainly shouldn’t be dismissed.
I’d say it has the qualities of a fantastic dividend stock for consistent passive income. Not only does it offer an attractive dividend yield of 7.5%, but it has been paying out dividends for over a decade.
I like that it’s also covered by earnings by 1.7x. This suggests to me that this level of dividend yield could be sustained. It has also managed to increase its annual dividend every year for at least the last 5 years.
That said, future dividend policy relies on future earnings. This would need to be maintained for the juicy dividends to continue.
Harshil Patel does not own shares in Phoenix Group.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Imperial Brands, National Grid, Somero Enterprises, Inc., Tesco, and Tritax Big Box REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.