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Top income stocks for October 2020

The Motley Fool Staff
·9-min read
Girl and father putting coin into piggy bank, sitting on sofa at home
Girl and father putting coin into piggy bank, sitting on sofa at home

We asked our freelance writers to share the top income stocks they’d buy for October and beyond. Here’s what they chose:

Tom Rodgers: Apax Global Alpha

Apax Global Alpha (LSE:APAX) shares have recovered sharply to hit 160p, almost exactly where they were pre-pandemic. A 5.96% yield on a P/E of 4 may already look good, but there’s something even better going on here.

This FTSE 250 private equity fund has a progressive dividend policy, which means it paid an average 5.75% yield over the last five years, and also wants to raise dividends per share every year. A massive hike in pre-tax profits last year means it now has wads of cash to invest worldwide too. I think this is a winner.

Tom Rodgers has no position in Apax Global Alpha

Kevin Godbold: Tate & Lyle

Tate & Lyle (LSE: TATE) provides ingredients and solutions to the food, beverage and other industries. The company has a long record of paying consistent shareholder dividends and held the payment through the recent coronavirus challenges. Indeed, so far, the firm appears to have navigated the crisis well. Trading has continued, helped by the defensive qualities of the food sector in general. Meanwhile, with the share price near 678p, the forward-looking dividend yield for the trading year to March 2022 is around 4.5%. I reckon the steady business backing this company makes this a top income share for October and beyond.

Kevin Godbold does not own shares in Tate & Lyle.

Royston Wild: United Utilities Group

Risk appetite remains sluggish and is unlikely to pick up as Covid-19, Brexit, and the US Presidential elections dominate newsflow. This means that investing in some classic defensive shares remains a sound idea for investors.

One such UK share I think is a quality buy today is United Utilities Group. Its essential role as water supplier makes it an ideal stock for uncertain macroeconomic and geopolitical times like these. But this is not the only reason I’d buy this FTSE 100 colossus. It also carries a mighty 4.9% dividend yield at current prices.

United Utilities also boasts a forward price-to-earnings (P/E) ratio of 19 times today. It’s a rating that’s not that appealing on paper, sure. But this premium rating is fully deserved, in my opinion, given the company’s colossal defensive qualities during these difficult times.

Royston Wild does not own shares in United Utilities Group.

Rachael FitzGerald-Finch: GlaxoSmithKline

My income stock pick for October is GlaxoSmithKline (LSE: GSK).

The pharmaceutical giant has solid business fundamentals and stable cashflows, both necessary requirements for a reliable dividend payer.

Indeed, in uncertain times, a defensive stock like GSK is a good addition to an investment portfolio due to consistent demand for the firm’s products. Moreover, its differentiated and innovative product pipeline gives it a competitive advantage in its markets.

To boot, GSK currently offers a 5.5% dividend yield. What’s not to like?!

Rachael FitzGerald-Finch owns shares in GlaxoSmithKline

Kirsteen Mackay: Hargreaves Lansdown

Savings and investment platform Hargreaves Lansdown (LSE:HL) is a strong company with a cash generating business model. In its trading statement released October 8, it reported growth in clients, assets and revenue. It has a price-to-earnings ratio of 22 and earnings per share are 66p. I like its 3.7% dividend yield, which is a decent return for a UK-focused business and has been increasing year-on-year.

With so much economic uncertainty in the world, investors like the credibility and stability Hargreaves Lansdown offers. Its fees are competitive, and discounts are available for regular investments. I think it’s well positioned to continue growing its customer base.

Kirsteen does not own shares in Hargreaves Lansdown

Matthew Dumigan: British American Tobacco

In my view, British American Tobacco (LSE: BATS) has one of the safest dividend payouts in the entire FTSE 100 index. This is largely thanks to a strong and stable performance in the first half of 2020, which kept cash flows intact despite the unfavourable macroeconomic climate.

The industry titan boasts a whopping 7.7% yield with a cover of 1.5. What’s more, the company has an impressive record of dividend growth over the years.

Ultimately, while the performance of British American Tobacco shares may leave something to be desired, I reckon income investors will certainly continue to appreciate its first-rate dividend payments.

Matthew Dumigan does not own shares in British American Tobacco.

Harshil Patel: IG Group

IG Group (LSE:IGG) benefitted from stock market volatility this year. This online provider of trading services recently highlighted that its trading revenue was up significantly versus the prior year, driven by continued high levels of activity by existing clients and a rise in new clients.

There are plenty of reasons for markets to remain turbulent. Potential news flow regarding the US election, Covid-19 measures, and Brexit-related negotiations could support trading activity.

With a dividend yield of 5.5%, net cash on the balance sheet, and revenue growth, I’d say that IG Group shares look suitable for both growth and income investors.

Harshil Patel owns shares in IG Group.

Rupert Hargreaves: Bellway

Homebuilder Bellway (LSE: BWY) has established itself as an income stock over the past few years – and I think it could fare well for October and beyond. Rising home prices have significantly benefited the company’s bottom line, helping it return large chunks of cash to investors. In 2019, the company paid a dividend of 150p per share.

A return to this level would give a yield of 5.6% on a current stock price. Currently, analysts are forecasting a yield of 3.5% for 2021. With the stock trading down 30% since the beginning of the year, I reckon now could be an excellent time to snap up this income stock while it trades at a bargain price.

Rupert Hargreaves does not own shares in Bellway.

Stuart Blair: Legal & General

After its share price decline, Legal & General (LSE: LGEN) is now yielding over 9%. But while such a high dividend may cause concern for a cut, in this case, the dividend looks very sustainable. This is because the company has seen rising profits over the last few years, and this has been accompanied by dividend growth.

Of course, the pandemic has had a negative effect on the insurer, and this has been met with a drop in its share price. But a resilient first half trading update, alongside an evident willingness to keep on paying its dividend, means that I’d buy Legal & General this month.

Stuart Blair owns shares in Legal & General.

Paul Summers: IG Group

The amount of cash it distributes to shareholders hasn’t budged for a while but online trader IG Group (LSE: IGG) remains my go-to choice for dividends. After all, a predicted 43.2p per share total return in FY21 still gives a great yield of 5.6%. That’s streets ahead of the 1% or so you’d get from even the best Cash ISA.

IG is the market leader in what it does and has a mountain of cash on its balance sheet. A valuation of just over 13 times forecast earnings also looks great value when you consider that markets may become volatile once again in the run-up to the US Election.

Paul Summers owns shares in IG Group

Edward Sheldon: Unilever

My top income stock for October is consumer goods champion Unilever (LSE: ULVR). It currently sports a prospective dividend yield of about 3%.

There are a few reasons I like Unilever as an income stock. One reason is that the company is pretty much recession-proof. This translates to consistent dividends for investors. While a large number of FTSE 100 companies cancelled or suspended their dividends earlier in the year due to economic uncertainty, Unilever didn’t.

Another reason is that the company has a fantastic long-term dividend growth track record. Since the early 1950s, Unilever has compounded its dividend by around 8% per year.

All things considered, I see ULVR as one of the best dividend-paying stocks in the FTSE 100 index.

Edward Sheldon owns shares in Unilever

Jonathan Smith: Vodafone Group

Vodafone Group (LSE:VOD) currently sits around the top 10% of highest dividend yields firms in the FTSE 100. The yield is at 7.39%, reflecting the current situation of the business. Current debt levels stand at an eye-watering €42.2bn, one of the reasons why the share price has fallen (and dividend yield has risen) this year.

However, full-year results in May showed that free cash flow actually increased to €4.9bn. This, along with the fact that the firm went ahead with the dividend, makes me believe that the dividend will continue to be paid.

Jonathan Smith has no position in Vodafone Group.

G A Chester: Primary Health Properties

I’ve made FTSE 250 firm Primary Health Properties (LSE: PHP) my top income stock for October, not because it sports a super-high yield, but because it has a tremendous record of inflation-busting dividend growth over more than two decades.

The company owns over 500 modern primary health facilities in the UK and Ireland. Its income is largely government-backed, and it’s more or less immune to events in the wider economy. This has enabled it to deliver 23 consecutive years of dividend growth.

A current yield of 4.1%, a strong development pipeline, and rising and ageing populations, all bode well for continuing bumper income rewards.

G A Chester has no position in Primary Health Properties.

Roland Head: Polymetal International

The gold price remains close to record highs, which means producers with low costs are enjoying record profits currently. My top income stock from the gold producers on the London market for October is Polymetal International (LSE: POLY), which operates mines in Russia and Kazakhstan.

Polymetal’s profits are expected to double in 2020 and rise by a further 28% in 2021. Debt levels look comfortable to me and cash generation is good.

City forecasts suggest shareholders could enjoy an 8% dividend yield next year. Despite the risk of a gold slowdown, I reckon Polymetal is an income buy right now.

Roland Head does not own shares in Polymetal International.

Manika Premsingh: Polymetal International

The FTSE 100 precious metals miner, Polymetal International (LSE: POLY), recently doubled its dividends. That alone is reason to consider buying this income-generating stock.

But there are others too. Like its dividend yield. At 3.5% it isn’t dismal, even though it isn’t the highest. Its dividend continuity is likely too. That it has paid dividends consistently in the past supports this argument. Moreover, gold prices are expected to rise further as the pandemic continues and the economy remains uncertain. This too will support POLY’s financial strength and its ability to pay dividends.

Three, its recent share price fall makes this an opportune time to buy the share.

Manika Premsingh owns shares of Polymetal International

The post Top income stocks for October 2020 appeared first on The Motley Fool UK.

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