5 of the safest high yielding dividend stocks to buy now
I think the stock market is one of the best ways to generate reliable income in the long run. In this article, I’m going to take a look at five high yielding dividend stocks that I would buy if I wanted to generate maximum income today. Of course, “reliable” does not mean guaranteed: companies can reduce or reduce their dividend payments to shareholders at any time.
The average dividend yield of these five stocks is now 6%, based on the 2021 forecast. This is double FTSE 100 average of 3%. These are all stocks that I would buy today if I started building a passive income portfolio.
6% + returns
Two of the five stocks on my list currently offer a forecast return above 6%. At the top is the tobacco giant FTSE 100 British American Tobacco, with a yield of 7.7%.
BATS will obviously trigger ethical concerns for some investors. But the company’s over 35% profit margins and super-strong cash generation ticks all the boxes for me as an income investor.
My main concern is the likelihood of a long-term drop in smoking rates in key markets such as the United States. So far this has been managed by market share gains and higher prices. But that could be a problem someday.
The other 6% + return comes from the financial giant Legal and General Group. The brand of this company is well known. What is not widely known is that much of this activity is now focused on the management of large company pension plans and investment funds.
Legal & General’s profitability and cash generation have impressed me for years. I think the company’s 6.7% return should be safe. The main risk I see is that the company’s investments are huge and complex. If the company’s internal forecasts and assumptions were wrong, shareholders could be faced with a dividend cut.
A high yield dividend green stock?
My next two stocks both offer returns between 5% and 6%. The first is the wind farm manager Greencoat UK Wind. This business is pretty straightforward: Greencoat invests money in wind farms and then collects the income they generate from electricity sales and government grants.
The expected return of 5.6% seems pretty safe to me, although I think there is a risk that wind revenues will become more variable as more wind farms are built without a subsidy.
My other choice for future growth is the telecommunications group Vodafone. The stock offers a high dividend yield of 5.9%, supported by stable cash flow. Growth in Europe is expected to be slow, I think, but I’m excited about the growth potential of the group’s African operations.
Safer than houses?
Commercial property has always been viewed as a reliable source of income. I believe this will continue to be true, despite the disruption to the market over the past year.
My choice is FTSE 100 REIT Landsec, which owns some of London’s most demanded office buildings. I think these flagship sites will continue to be popular with businesses, even if the demand for office space in general is lower in the future.
Landsec has struggled over the past year, but the company’s finances look solid to me. I expect the 4.9% expected return to increase over the next several years.
These high yielding dividend stocks are unlikely to generate rapid growth. But in my opinion, they should provide reliable income today and offer potential for future earnings.
5 actions to try to create wealth after 50 years
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Roland Head has no position in any of the stocks mentioned. The Motley Fool UK recommended British American Tobacco, Greencoat UK Wind and Landsec. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.