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Buying UK dividend stocks is an effective way for investors to generate long-term income. Past performance is no guarantee of future returns, but buying cheap income shares in my stocks and Shares ISA is the cornerstone of my own investment strategy.
Even as the global economy faltered, British share dividends continued to rise last year. They rose by 5.4% (excluding special dividends) in 2023, to £88.5bn. This is stated by the share transfer company Computershare.
Shareholder payouts are expected to continue rising in 2024 too, albeit at a slower pace of 2% (to £89.8bn). However, I think I can do better than this, which is why I've been putting together a list of the best dividend growth stocks to buy for the near term and beyond.
Here's a look at one of the top income stocks poised to deliver market-beating dividend growth. Let me explain why I hope to buy it for my own ISA next time.
Bet on growing dividends
The banking sector was one of the main reasons why total British stock dividends increased in 2023. According to Computershare, “Banks became the highest paying sector in the UK for the first time since 2007.“.
This was largely due to the boost that higher interest rates provided to bank profits. The outlook for 2024 is much bleaker for mainstream traders and dividend favorites like Lloyd'showever, amid predictions of rate cuts from spring and signs of weak economic growth in the UK.
But that doesn't mean you're avoiding banks. Believe TBC Banking Group (LSE:TBCG) will still be a solid banking stock to buy, for example.
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Dividends have increased at a dizzying pace following the end of the pandemic, as the chart above shows. And analysts expect this trend to continue at least until the end of 2024, resulting in a large dividend yield of 7.4%. City analysts estimate that FTSE 250 The firm will increase the annual ordinary dividend by 15% this year.
That's well above the 2% that Computershare predicts. London Stock Exchange Share.
TBC Bank also appears to be in very good shape to meet current dividend forecasts. The expected payout is covered 3.3 times by expected earnings, providing a wide margin of error. The company also has a strong balance sheet that will help it grow dividends in line with city estimates. Its CET1 capital ratio, a measure of solvency, was 17.5% in September.
Impressive value
The Georgia-based bank has two huge advantages over UK-focused banks. Product penetration is extremely low. And the economy there is growing rapidly. These factors drove the group's operating profit 18.3% higher during the first nine months of 2023.
The downside is that Georgia's proximity to Russia creates some risk to TBC Bank's earnings. Economic growth in the Eurasian country could be affected if the geopolitical outlook in the region worsens.
But I think this threat is more than reflected in the company's very low valuation. City analysts believe the group's profits will rise by 14% in 2024. This leaves TBC Bank trading on a price-to-earnings (P/E) ratio of four times.
There are many large dividend stocks trading below their value right now. I think this FTSE 250 stock could be one of the best.
