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3 UK dividend stocks I’d buy for 2021 and beyond

Edward Sheldon, CFA
·4-min read
Hand holding pound notes
Hand holding pound notes

In 2020, we saw how important it is to be selective when investing in dividend stocks. Last year, around 40% of companies in the FTSE 100 index cancelled or suspended their dividends.

Here, I’m going to highlight three UK dividend stocks I like for 2021 and beyond. I think these stocks have the potential to be dependable dividend payers going forward.

A high-yield dividend stock for 2021

I don’t normally touch high-yield dividend stocks. This is because a high yield is often a sign of underlying problems in the business. One I do like, however, is Legal & General Group (LSE: LGEN). It currently sports a prospective yield of just under 7%.

There are a few reasons I like this income stock. Firstly, the company has put together a good dividend track record over the last decade. Unlike a lot of other FTSE 100 companies, it didn’t suspend, cancel, or cut its payout in 2020.

Secondly, unlike many other high yielders, LGEN has decent growth prospects. Its retirement business looks set to keep growing, as does its asset management business. Recently, the company said that over the next five years, it expects to deliver diversified growth across the group. It also advised that from 2021, it intends to grow the dividend at low- to mid-single digits.

Legal & General currently trades on a P/E ratio of about nine. At that valuation, I think the stock has the potential to deliver a healthy mix of capital gains and dividends.

A recession-proof dividend payer

The next UK dividend stock I like for 2021 is consumer goods company Unilever (LSE: ULVR). It has an amazing long-term dividend track record and currently sports a prospective yield of about 3.5%. I see that as an excellent yield in the current low-interest-rate environment.

I think Unilever is an attractive dividend stock for a couple of reasons. Firstly, the company is pretty much recession-proof. No matter what happens to the global economy this year, people will still buy Dove soap and Persil detergent.

Secondly, Unilever has decent long-term growth potential. Not only does the company have significant exposure to the emerging markets but it is also moving into high-growth industries such as vitamins and petcare.

Unilever shares have pulled back recently due to sterling strength and currently trade on a forward-looking P/E ratio of about 19. At that valuation, I see this dividend stock as a strong buy.

A play on Amazon

Finally, I like Tritax Big Box (LSE: BBOX). It’s a FTSE 250-listed real estate investment trust that specialises in warehouses and lets them out to retailers such as Amazon. Analysts expect the company to pay out dividends of 6.7p per share this year, which equates to a yield of about 4% at the current share price.

Logistical companies are benefiting from the online shopping boom in a big way, and Tritax is no exception. In the third quarter of 2020, it let out 320,000 square feet of warehouse space to tenants (including Apple), adding £2.5m to portfolio contracted rent. As the UK e-commerce industry continues to expand in the years ahead, Tritax should continue growing. Recently, it advised it’s “well-positioned to continue to deliver both attractive and secure income and capital growth for investors.”

This dividend stock isn’t cheap. Currently, the forward-looking P/E ratio is 24.1. However, given the long-term growth potential here, I think that valuation is fair.

The post 3 UK dividend stocks I’d buy for 2021 and beyond appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Legal & General Group, Unilever, Amazon, Apple, and Tritax Big Box. 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 owns shares of and has recommended Amazon and Apple. The Motley Fool UK has recommended Tritax Big Box REIT and Unilever and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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 2021