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3 UK dividend stocks I’d buy in October

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

The UK stock market is home to many great dividend-paying companies. Whether you’re looking for high yield, or dividend growth, there are plenty of opportunities.

Here’s a look at three UK dividend stocks I’d buy in October.

Strong high-yield play

One UK dividend stock that stands out to me as a bargain right now is Legal & General (LSE: LGEN). Its share price has taken a big hit this year and it currently trades on a forward-looking P/E ratio of just 6.8. The prospective dividend yield on offer is a high 9.3%

For a long time, I’ve seen Legal & General as one of the FTSE 100’s best high-yield plays. Unlike many other high-yield stocks, LGEN actually has plenty of growth potential. Recent news from the company has reinforced my view. While a large number of other FTSE 100 companies have suspended, cancelled, or cut their dividends this year, L&G has maintained its payout.

One thing that looks interesting here is on 25 September, the chairman purchased 41,974 shares. This is a good sign, in my view. It suggests the insider is confident about the future and sees the stock as currently undervalued.

All in all, I see a lot of appeal in Legal & General right now. I’d buy this dividend stock today.

Top UK dividend stock

If dividend safety is your focus, I’d take a look at consumer goods company Reckitt Benckiser (LSE: RB). It doesn’t offer the highest yield. Currently, the prospective dividend yield is just 2.3%. However, in my view, this is one of the safest dividend stocks in the entire FTSE 100.

There are a few reasons I see RB’s dividend as very safe. Firstly, the company – which focuses on health and hygiene – is pretty much recession proof. Consumers buy its products irrespective of economic conditions. Secondly, its hygiene sales are booming due to Covid-19. I expect this trend to persist for a while. Finally, the dividend coverage ratio – a key measure of dividend safety – looks robust at 1.8.

Reckitt shares are a little pricey. Currently, the forward-looking P/E ratio is about 24. Yet given the global focus on hygiene, I think the stock can climb higher. Barclays has a price target of 9,000p. That’s about 17% above the current share price.

Value opportunity

Finally, I also think FTSE 100 packaging company DS Smith (LSE: SMDS) is worth a look right now. It has been a solid dividend payer in the recent past. However, it suspended its payout earlier in the year due to Covid-19 uncertainty. Recently though, it announced it plans to reintroduce its dividend shortly.

The reason I see appeal in DS Smith is that I’m very bullish on the online shopping theme. In the UK, the percentage of overall retail sales represented by online sales has jumped from approximately 6.5% to around 20% over the last decade. Covid-19 is likely to accelerate the trend. Packaging companies are a great way to get exposure to the theme.

DS Smith has plenty of exposure to e-commerce. As a result, the business hasn’t been impacted badly by the coronavirus. However, its share price has still taken a large hit this year. I think buying the stock now, while it’s still beaten down from Covid-19 uncertainty, could be a smart move. The P/E ratio using next year’s earnings forecast is just 10.4.

The post 3 UK dividend stocks I’d buy in October appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Legal & General, Reckitt Benckiser, and DS Smith. The Motley Fool UK has recommended DS Smith. 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 2020