Each month, we ask our freelance writers to share their best dividend stock ideas with you – here's what they had to say in September!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
blood pressure
What it does: BP operates across the entire energy value chain, including production, refining, marketing and retail.
By Andrew Mackie. The blood pressure (LSE:BP.) The share price may have been falling in recent months, but I don't see anything that would change my long-term optimistic view on the company.
In the second quarter, it increased its dividend per share (DPS) by 10% to 8 cents. In fact, over the past three years, DPS has increased by 52%. Despite these excellent returns, it still trades at a low forward price-to-earnings ratio of eight, one of the lowest in the sector.
In 2020, when oil prices turned negative, no one was interested in investing in oil. I think the same is true today. One of the main reasons is the lack of demand from China, the manufacturing powerhouse of the global economy. But despite this, oil prices remain buoyant. One reason is that demand is coming from a construction boom in the US, driven by the offshoring of manufacturing capacity.
A demand shock caused by a recession remains a clear short-term risk to BP's share price. However, history shows that commodities companies do well in inflationary environments. And despite the rhetoric of central banks such as the Federal Reserve, the battle against inflation is, in my view, far from won.
Andrew Mackie owns shares in BP.
Howden Joinery
What it does: It is the UK's leading manufacturer of fitted kitchens, bedrooms and joinery products for the home renovation market.
By Zaven Boyrazian. Renovation hasn’t been on the top of most households’ agendas lately. After all, with higher interest rates and inflation putting pressure on household budgets, it’s an expense many have put off.
However, despite these headwinds, Howden Joinery (LSE:HWDN) has managed to maintain revenue and profit growth following the market boom during lockdown. Its latest results show that revenue remains 48% above pre-pandemic levels thanks to the launch of new products, the exercise of pricing power and the optimisation of operations.
Growth has slowed. Many households are waiting for interest rates to fall before starting their renovation projects, so growth could pick up again in 2025. And margins remain among the highest in the sector.
Obviously, it all depends on how the economy performs. The longer the Bank of England delays significantly reducing rates, the longer Howden will have to operate in an unfavourable environment. And the company may gradually lose steam.
However, with enough cash on the books and a solid track record, it's a risk worth taking, in my opinion.
Zaven Boyrazian owns shares in Howden Joinery.
NatWest Group
What it does: NatWest Group is a group of banks, including NatWest, Coutts and RBS.
By Jon Smith It's not just the 55% rise in the stock price over the past year that makes me want to buy NatWest Group (LSE:NWG) shares. The dividend yield is 5.06%, well above the FTSE 100 Index average.
Looking ahead to the autumn, I think equities could continue to perform well as I expect two more interest rate cuts from the Bank of England this year. Some would say this poses a risk to the bank as it will reduce the net interest margin.
While this is true, I expect the negative impact to be offset by increased business done on new loans and mortgage products. The group has a large retail, private equity and corporate division. With lower interest rates, demand for cheaper personal and business loans should increase significantly. This should provide the group with higher revenues, which would support future dividend payments.
Jon Smith does not own any shares in NatWest Group.
Pets at home
What it does: Pets at Home sells pet products online and through a chain of large UK pet stores, many of which also offer veterinary and pet care services.
By Roland Head A 2023 survey by UK Pet Food found that 57% of UK households owned a pet, up from 40% in 2019.
All these extra pets need feeding and care. I think… Pets at home (LSE: PETS) offers a great opportunity for UK stock market investors to benefit from this growth in demand.
Annual sales have increased by 50% to £1.5bn since 2019, while operating profit has more than doubled to £119m for the year ended 31 March 2024.
I believe the company's integrated offering will help it gain more market share.
One risk is that an ongoing investigation into competition between veterinary groups could hurt Pets' pricing power. However, I believe this is already largely factored into prices.
The Pets at Home share price has fallen 40% from its 2021 high of 500p.
The stock is now trading at 13 times expected earnings, with a dividend yield of 4.6%. I consider this a good buying opportunity.
Roland Head does not have any position in Pets at Home.
Primary health properties
What it does: Primary Health Properties lets GP surgeries in the UK and Ireland, primarily to government organisations.
By Stephen Wright. Interest rates have started to come down in the UK. And I think real estate investment trusts (REITs) are doing well. Primary health properties (LSE:PHP) will benefit greatly.
Since the vast majority of their income comes from national governments, the risk of default is minimal and demand for their buildings should be long-lasting, as life expectancy increases over time.
These characteristics give Primary Health Properties good visibility into its earnings going forward, and the company has taken advantage of this by adding a significant amount of debt to its balance sheet.
That is the biggest risk facing the company right now. If the firm has to refinance its debt at higher rates, the dividend could come under pressure.
However, lower interest rates reduce the chance of this happening. And with the stock price already starting to recover from its lows, I'm thinking of buying shares while there's still a 6% dividend on offer.
Stephen Wright owns shares in Primary Health Properties.