There are many dividend stocks on the London Stock Exchange. However, not all can be considered to be ‘safe’ dividend stocks. Some have patchy payout track records. Others are prone to wild share price swings (which can completely wipe out the gains from dividends).
Here, I’m going to highlight two UK dividend stocks that I consider to be safer than average. I own both of these stocks myself, and I plan to buy more of them going forward as I grow my portfolio.
A reliable dividend payer with a 4% yield
The first stock I want to highlight is Unilever (LSE: ULVR). It’s a consumer goods company that owns a vast range of well-known brands, including Dove, Domestos, and Hellman’s. The prospective dividend yield on offer here is just under 4% right now, although yields are never guaranteed.
Consumers tend to buy Unilever products no matter what’s happening in the economy. So, unlike more cyclical companies (such as banks and housebuilders), Unilever doesn’t see its revenues suddenly fall off a cliff when economic conditions deteriorate. As a result, its share price tends to be relatively stable.
Meanwhile, the company’s brand power allows it to increase its prices when it needs to (it raised prices by 12.5% in the first half of 2022). This helps it offset higher costs and generate a solid level of profitability.
As for the dividend, this is pretty stable as well. Unilever is a reliable dividend payer and has a great track record when it comes to increasing its payout. Even during the Covid-19 pandemic, the company lifted its dividend.
Of course, like any stock, Unilever does have its risks. One is inflation. Right now, Unilever is facing higher costs. Raising its prices will help to offset this, but profitability could still be impacted, sending its share price lower.
Overall, however, I see this stock as one of the safer dividend stocks on the London Stock Exchange.
20+ years of dividend growth
Another dividend stock that I see as a bit safer is Diageo (LSE: DGE). It’s a leading alcoholic beverages company that focuses on premium spirits. Its brands include include Johnnie Walker, Tanqueray, and Bulleit. The yield here is about 2.3%.
Like Unilever, Diageo has relatively stable revenues. That’s because, no matter what the economy is doing, people tend to buy alcohol. It also has pricing power due to the popularity of its brands. So, it can raise prices if costs are rising in order to maintain profitability. As a result of these attributes, its share price tends to be pretty stable.
When it comes to dividends, Diageo has a great growth track record. Believe it or not, the company has increased its dividend payout every year for over 20 years now. There are not many companies on the London Stock Exchange that can boast that kind of track record.
It’s worth pointing out that Diageo does have a slightly higher valuation (the P/E ratio here is about 21). As a result, it could see its share price fall if growth was to stall.
Compared to a lot of other UK dividend stocks though, I see it as pretty safe.
Edward Sheldon has positions in Diageo and Unilever. The Motley Fool UK has recommended Diageo and Unilever. 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.
Motley Fool UK 2022