Dividend stocks are popular within the investment community and it’s easy to see why. One major advantage of these stocks is that they offer two paths to potential profit — capital gains via share price increases and dividend payments. Another benefit is that they tend to be less volatile than growth stocks. This means that they can potentially provide portfolio stability.

Finding the best dividend stocks

However, building a portfolio of top dividend stocks has its challenges. Companies can reduce, suspend, or cut their dividend payments at any time, so it pays to be selective when investing in stocks for their dividends. Ultimately, the key is to look beyond the yields on offer and find dividend payers that have strong balance sheets and healthy cash flows, as these factors tend to have a big impact on dividend sustainability. It can also be a good idea to focus on stocks that have the potential to generate strong total returns (capital gains plus dividends) in the long run.

5 top dividend stocks for H1 2022

In this report, we highlight five top dividend stocks to consider for H1 2022. The stocks are:

We also highlight a selection of dividend-focused exchange-traded funds (ETFs) for those who prefer to take a more diversified approach to investing.

You can find information on how TBanque pays dividends to clients who own dividend-paying securities here.

BP (BP.L)

Past performance is not an indication of future results.

  • BP is one of the world’s largest energy companies. Historically an oil and gas company, it is currently in the process of transitioning to a renewable energy business. Its goal is to be a “net zero” company by 2050.
  • BP has reduced its dividend payout in recent years in order to ramp up its renewable energy investments, however, the yield on the stock is still attractive today.
  • For the financial year ended December 31, 2021, analysts expect BP to pay investors total dividends of 21.7 cents per share, which at the current share price and exchange rate, equates to a yield of around 4.1%.
  • Dividend coverage — which is the ratio of earnings per share to dividends per share and is a measure of dividend security — is expected to be around 2.9, which indicates that the dividend is relatively secure.
  • BP could potentially deliver attractive total returns for investors in the years ahead. In the short term, the company looks set to benefit from higher oil prices. “The company is a cash machine at these sorts of (oil and gas) prices,” said CEO Bernard Looney late last year.
  • Meanwhile, in the long run, BP looks set to benefit from the global shift to clean energy. It’s worth noting that the company has been making investments in the electric vehicle (EV) charging space recently. This industry is expected to grow significantly over the next decade.
  • Next earnings release: Q4 results, February 8, 2022
  • Five-year share price performance: -22% (as of January 20, 2022)

 

Year FY2019 FY2020 FY2021E FY2022E
Dividend per share (cents) 41.00 31.50 21.70 22.40
Dividend yield* 4.10% 4.23%

 

* Yields correct as of January 20, 2022

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Rio Tinto (RIO.L)

Past performance is not an indication of future results.

  • Rio Tinto is one of the world’s largest mining and metal companies. Operating in 35 countries, it specialises in the production of iron ore, copper, aluminium, and minerals.
  • Rio has paid out some bumper dividends in recent years. In 2020, the group paid its investors a total of $5.57 per share in dividends. For 2021, analysts expect the group to pay out a total of $9.97 in dividends. That translates to a yield of about 13.1% at the current share price.
  • Rio is benefitting from strong commodity prices at the moment. One commodity that has performed very well is copper, which is up about 50% over the last 18 months. Higher commodity prices have boosted profits and enabled the company to pay out a number of “special dividends” to investors.
  • Rio’s exposure to copper means the company is well placed to benefit from the global shift towards renewable energy and the growth of the electric vehicle (EV) market in the coming years. Today, demand from renewable power generation, battery storage, EVs, charging stations, and related grid infrastructure accounts for around one fifth of copper consumption.
  • It’s worth noting that recently Rio has been increasing its exposure to lithium — which is used in EV batteries. Late last year, for example, it acquired a lithium project in Argentina for $825 million. Investments in this space should help the company benefit from the EV revolution.
  • Next earnings release: Q4 results, February 23, 2022
  • Five-year share price performance: 52% (as of January 20, 2022)
Year FY2019 FY2020 FY2021E FY2022E
Dividend per share ($) 4.43 5.57 9.97 6.33
Dividend yield* 13.14% 8.34%

 

* Yields correct as of January 20, 2022

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Aviva (AV.L)

Past performance is not an indication of future results.

  • Aviva is a British financial services company that specialises in insurance, savings, and investment solutions. The company is the UK’s largest insurer with a 23% share of the UK life and savings market.
  • In 2020, Aviva announced a new dividend policy in an effort to provide sustainable and resilient dividends for investors. The group believes this policy — which is aligned to its profitability across its core markets — will enable it to grow its payout by low to mid-single digits over time.
  • For 2021, analysts expect Aviva to pay out dividends of 22.2p per share to investors. At the current share price, this equates to a yield of just over 5%. Earnings for 2021 are expected to come in at 47.9p, which gives a dividend coverage ratio of a healthy 2.2.
  • Aviva has been taking steps to simplify and strengthen its business in recent years and this appears to be paying off. In the company’s H1 results, posted in August 2021, it reported its highest UK general insurance sales in a decade, record flows in its savings and retirement division, and a 17% increase in adjusted operating profit.
  • Aviva also advised in its H1 results that it intends to return at least £4 billion to investors by the end of 2022, starting with a buyback of up to £750 million.
  • Aviva’s valuation remains low. Currently, the stock has a forward-looking price-to-earnings (P/E) ratio of about 9.5. That’s well below the median P/E ratio across the FTSE 100 index of 16.1.
  • Next earnings release: Q4 results, March 2, 2022
  • Five-year share price performance: -9% (as of January 20, 2022)
Year FY2019 FY2020 FY2021E FY2022E
Dividend per share (p) 15.50 21.00 22.20 25.10
Dividend yield* 5.05% 5.70%

 

* Yields correct as of January 20, 2022

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Taylor Wimpey (TW.L)

Past performance is not an indication of future results.

  • Taylor Wimpey is one of the largest residential property developers in the UK. Last year, the company — which offers everything from one-bedroom apartments to six-bedroom detached houses — built a total of 14,087 homes.
  • While Taylor Wimpey cancelled its dividend payments in 2020 due to COVID-19 disruption, the company has resumed making payments and looks set to pay out some cash distributions in the years ahead.
  • For 2021, analysts expect the group to reward shareholders with total dividends of 8.68p per share. That translates to a yield of around 5.4% at the current share price.
  • In a trading update posted on January 17, 2022, Taylor Wimpey advised that it is in a strong position right now. “Market conditions remain supportive and we continue to see strong demand for our homes,” wrote CEO Pete Redfern. “We start 2022 in a very strong position with an excellent order book,” he added.
  • Management advised in the trading update that the group remains committed to returning excess cash to shareholders and that it intends to return cash in the near- term via a share buyback. It noted that the group ended 2021 with cash of £837 million on its books.
  • Next earnings release: Q4 results, March 3, 2022
  • Five-year share price performance: -1% (as of January 20, 2022)
Year FY2019 FY2020 FY2021E FY2022E
Dividend per share (p) 3.84 4.14 8.68 12.40
Dividend yield* 5.39% 7.71%

 

* Yields correct as of January 20, 2022

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Citigroup (C)

Past performance is not an indication of future results.

  • Citigroup is an American financial services company. It is one of the “Big Four” banks in the US, alongside JP Morgan, Bank of America, and Wells Fargo, and has a 4% market share of domestic deposits.
  • Citigroup pays dividends on a quarterly basis and for 2021, it is paying out a total of $2.04 per share. This equates to a yield of around 3.2% at the current share price. This is the highest yield of any of the Big Four US banks. Earnings per share for 2021 were $10.14, giving a high dividend coverage ratio of 5.0.
  • In 2021, Citigroup also returned $7.6 billion to shareholders through share buybacks. Overall, the total capital return to shareholders for the year was $11.8 billion. Buybacks should help boost earnings per share going forward.
  • Citigroup is currently undergoing a major transformation. The aim of this transformation is to wind down the less profitable divisions of the bank and focus on high-margin areas of banking such as international wealth management and investment banking. Last year, the bank announced plans to exit or sell its consumer banking operations in 13 markets across Asia, Europe, and the Middle East. This should free up around $7 billion of capital.
  • On March 2, 2022, Citigroup will hold an investor day to discuss its new strategy. Here, investors will get to see management’s vision for the transformation.
  • At its current share price, Citigroup trades at around 80% of its tangible book value (TBV), which is what it would be worth if the company was liquidated. This is a low valuation relative to its Big Four peers. If the company can show that it’s executing its transformation plans, its valuation could rise.
  • Next earnings release: Q1 results, April 15, 2022
  • Five-year share price performance: 15% (as of January 20, 2022)
Year FY2019 FY2020 FY2021 FY2022E
Dividend per share ($) 1.92 2.04 2.04 2.11
Dividend yield* 3.16% 3.27%

 

* Yields correct as of January 20, 2022

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Dividend ETFs and Smart Portfolios

Those who prefer to invest in ETFs have a number of options when it comes to dividend stocks.

Dividend-focused ETFs to consider include:

Investors may also want to consider TBanque’s DividendGrowth Smart Portfolio. This is a fully allocated investment portfolio focused on high-quality dividend-paying companies that have exceptional long-term dividend growth track records.

Charts sourced from TBanque platform 25/01/2022.

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This communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. TBanque makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.