Dividend shares form the core part of my portfolio. For every four or five dividend stocks, I have one growth stock. There are a number of reasons for this but, above all, I’m fairly risk-averse having built up a portfolio that I don’t wish to jeopardise.
I’m always on the lookout for top quality dividend stocks to add to my portfolio. And, right now, with share prices depressed and yields pushed higher, I believe now is a good time to buy and lock in higher yields.
So here are three dividend stocks I’m backing to outperform the market this year and beyond.
Greencoat UK Wind: yield 4.71%
Greencoat UK Wind (LSE:UKW) is a closed-ended investment company, aiming to provide investors with an annual dividend that increases in line with inflation. The trust, as the name suggests, invests in UK wind farms. Its holdings produce enough energy to power over 1.5 million homes.
For a firm operating in a highly exciting sector, Greencoat trades with a relatively low price-to-earnings ratio of just seven. This, combined with its 4.71% dividend yield, makes it an attractive investment for me.
I’ve recently bought this stock as I’m anticipating increased activity in the wind energy sector in 2023, including the end to the moratorium on new onshore wind farms.
Lloyds Bank: yield 4.2%
Lloyds‘s (LSE:LLOY) current 4.2% dividend yield isn’t the biggest on the FTSE 100, but it’s larger than the majority of dividend-paying stocks. The bank is a stalwart of the index, and some might call it unexciting. But that’s fine with me.
Lloyds doesn’t have an investment arm and receives around 70% of its income from UK mortgages. And, right now, that appears to be a positive as higher interest rates are pushing net interest margins higher.
The institution is even earning more interest on the money it leaves with the Bank of England. According to analysts, every 25 basis point hike is worth £200m in interest revenue.
A recessionary environment won’t be good for bad debt and impairment charges, but I expect this bank to fly high as interest margins inflate. I’ve recently bought more Lloyds stock.
GSK: yield 4.4%
I’m looking to buy more of pharma and biotech giant GSK (LSE:GSK). Discounted cash flow modelling indicates a fair share price of 1,863p. That’s around 20% above the current position.
Not every pharma company is going to be a winner, but trends suggest as the world’s population ages, we’re going to need more drugs, treatments and vaccines.
The company currently offers a 4.4% yield — GSK expects to pay out 61.25p per share for 2022. That’s enough to get me interested.
Recent performance has been encouraging. Total sales were up 9% year on year to £7.8bn in Q3, with speciality medicines jumping 24%.
Debt stood at £18.4bn at the end of September, and the potential risk of further claims related to the Zantac drug, remain issues. But GSK insists it has no case to answer.
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James Fox has positions in Greencoat Uk Wind, GSK and Lloyds Banking Group Plc. The Motley Fool UK has recommended GSK, Greencoat Uk Wind Plc, and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.