Every month, we ask our freelance writers to share their top ideas for dividend stocks to buy with you — here’s what they said for October!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
HSBC Holdings
What it does: HSBC is one of the world’s largest banks, serving 39m customers across 62 countries and territories.
By Charlie Carman. HSBC (LSE:HSBA) shares have performed well this year, outpacing the FTSE 100 index by a considerable margin.
Its H1 2023 results were stellar. Buoyed by rising interest rates, the bank’s profit before tax grew 158% on a constant-currency basis to hit $21.7bn. In another notable achievement, HSBC made a $1.5bn provisional gain on its acquisition of Silicon Valley Bank UK.
The upshot of these successes is that HSBC’s forward dividend yield is now approaching 8% while the forward price-to-earnings (P/E) ratio looks attractive at around just 6.5. In addition, the bank is undertaking a new $2bn share buyback programme to add value for investors.
Admittedly, China’s economic slowdown clouds the share price’s growth outlook since HSBC has greater Asian exposure than its Footsie competitors.
Nonetheless, with a mighty forward yield and forecast dividend cover standing at two times earnings, HSBC stock offers significant potential rewards as well as risks.
Charlie Carman does not own shares in HSBC Holdings.
M&G
What it does: M&G is an asset manager with operations in the UK and over two dozen other markets internationally.
By Christopher Ruane. Simply having a dividend policy never guarantees that a company will be able to deliver on it. However, over the past several years M&G (LSE: MNG) has performed in line with its stated aim of maintaining or raising its shareholder payout annually.
In M&G’s recent interim results, the business increased its dividend by just under 5%. The company said it is making good progress on hitting its financial targets for the next several years, making me hopeful that we could also see an increase in the final dividend.
M&G shares often seem unloved in the City. One effect of that is that they now offer a mouth-watering yield of around 10%.
Could such a high yield signal risks? If asset values shrink in a bear market and policyholders withdraw money, that could hurt profits.
But with its well-known name, long experience and a global customer base in the millions, I am confident the dividend stock can thrive in the long term.
Christopher Ruane owns shares in M&G.
M&G
What it does: M&G is a savings and investments company, providing services to UK retail customers.
By Alan Oscroft. The forecast M&G (LSE:MNG) dividend yield stands close to 10%.
While finance stocks are under the hammer, M&G shares haven’t done too badly. Since splitting off from Prudential in 2019, they’re only down around 9%.
M&G raised its interim dividend by 5%. And that bodes well for the predicted big full-year payout.
Looking further into the future, we’ve had a couple of hints that things could be getting better for financial stocks.
Inflation fell unexpectedly in August, and the Bank of England has held interest rates when it was widely expected to hike them again.
We’re still in risky times, though. And I think the biggest danger lies in dividend cover. Forecast earnings just wouldn’t cover it, and won’t next year either if the analysts are right.
Still, on balance, I see this as an opportunity to bag a big yield while it’s there. This dividend stock is on my shortlist.
Alan Oscroft does not own M&G or Prudential shares.
Safestore Holdings
What it does: Safestore Holdings is Britain’s biggest self-storage group with 187 assets in the UK, France and Spain.
By Royston Wild. Self-storage giant Safestore Holdings (LSE:SAFE) has slumped 18% in value in the year to date at the time of writing. It’s a decline that I think provides an attractive dip-buying opportunity.
Demand for its shares has slumped as interest rates have risen and the housing market has endured a deep freeze. Yet the long-term outlook for the self-storage remains highly encouraging.
Indeed, the UK market is tipped to breach the £1bn marker for the first time in 2023 by Cushman and Wakefield and the Self-Storage Association.
A rising population, increasing consumerism, a booming residential rentals market, and the e-commerce boom are just a few factors underpinning steady market growth. Safestore is expanding rapidly to capitalise on this opportunity too, and its pan-European development pipeline sits at a whopping 1.523m square feet.
The stock’s recent share price drop leaves it with a decent 4% dividend yield for the new financial year beginning October 2023. This edges the FTSE 250 average of 3.5%.
Royston Wild does not own shares in Safestore Holdings.
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