3 magnificent dividend shares I’d buy in the FTSE sell-off
The FTSE 100 index has suffered a steep tumble in recent days. But I reckon it could be an opportunity to buy quality dividend shares at a discount.
The large-cap index fell over fears of a banking crisis that threatens to derail the economy. After the collapse of Silicon Valley Bank at the weekend, investors are concerned about potential contagion spreading to other banks.
Whether these fears are warranted or not, some dividend shares look particularly appealing right now.
I can see several stocks that currently offer a dividend yield over 7%. And that’s where I’d focus my search.
Warren Buffett famously said: “Be fearful when others are greedy, and greedy when others are fearful.” With a sharp drop in many Footsie shares recently, there’s definitely a sense of fear around.
Often the best opportunity to buy shares arise when it’s most uncomfortable. Mr Market sometimes pushes stock prices lower for irrational or emotional reasons. This can result in an opportunity to buy stocks at a discount.
Top dividend shares
One dividend stock that has recently fallen sharply is Phoenix Group (LSE:PHNX). The tumble in the share price has pushed its yield up to a whopping 9%.
That’s now the second-highest dividend yield in the FTSE 100. It strikes me as a great opportunity to earn a solid passive income.
But it’s important not to just rely on high yields. Dividends aren’t guaranteed and could be cut or suspended if business fundamentals decline.
That said, Phoenix recently increased its dividend. And it has consistently paid out for 14 years. With dividend cover of 1.5, I’m confident that it has sufficient cash flows to afford it too.
Finally, in the Spring Budget, the Chancellor scrapped the lifetime allowance for pension contributions. As a retirement business, I reckon Phoenix will benefit. If I had spare cash right now, I’d buy some today.
A defensive option
Next, if some of the market’s fears are warranted and the economy falls into a challenging period, I’d want to own some defensive shares.
One such dividend share is Imperial Brands (LSE:IMB). The tobacco business is relatively stable, and provides steady cash flows. With a price-to-earnings ratio of just six and a yield of 7.5%, I’d call this a cheap dividend share.
Its stable flow of profits is more than enough to cover its dividend. And with a double-digit return on capital, I’d also call it a quality dividend stock.
With long-established brands spanning decades, it holds a competitive advantage in the market. That said, the tobacco business is frequently targeted with regulation and can be affected by health concerns.
Overall though, if I had the money today, I’d definitely buy some for my Stocks and Shares ISA as part of a diversified portfolio.
Finally, I’d also buy Aviva. Much like Phoenix, the recent fall in the share price has created an excellent opportunity to buy an established income stock at a discount, in my opinion.
It now yields 7.6% and has been distributing dividends consistently for over three decades. Bear in mind that risks in the financial sector could affect the insurer. Overall though, the company looks on track to deliver its financial targets.
The post 3 magnificent dividend shares I’d buy in the FTSE sell-off appeared first on The Motley Fool UK.
Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands Plc. 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 2023