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When it comes to big dividend stocks, there are two key factors I consider. The obvious one is income generation, usually seen by dividend yield. The second factor is the performance of the stock price over a period of time. Here are two stocks that I have watched that are above average compared to the main index.
Ensure profitability
First, let's set the benchmark. The average dividend yield of the FTSE 100 is 3.55%. The index has risen 8.61% over the past year. So, ideally I need to select stocks that are ahead of both metrics. If not, then you'd be better off investing in a tracker fund that distributes the income.
One stock that is way ahead of this is Aviva (LSE:AV). The insurance and wealth management provider has a current yield of 7.13% and the stock is also up 17% over the past year.
In the first half of 2024 report, it recorded double-digit percentage growth in operating profit, cash remittances and capital generation compared to the first half of 2023. The CEO commented that “Sales have increased. Operating profit has increased. The dividend has gone up. Our plan to deliver more to customers and shareholders is really working.
Well”.
Given the nature of the insurance and the premiums written, the business has strong cash generation. This makes it attractive to dividend hunters. I don't see this changing anytime soon, which means it's one of the top stocks on my radar to consider adding to my portfolio.
One concern is that it could fall apart due to natural disasters. It offers home and travel insurance, so any form of black swan could result in losses for Aviva.
Moving with momentum
Another option I'm thinking about is BT Group (LSE:BT.A). Although it underperforms Aviva (5.53%), the stock is up almost 22% over the last year.
The share price rose again in May after full-year results highlighted that the company had surpassed peak capital spending in respect of fiber broadband rollout. In my view, this means that dividend payments will be more sustainable going forward, as investments elsewhere are not absorbing all the free cash.
Additionally, BT managed to achieve the £3 billion cost and services transformation program a year ahead of schedule. Again, this means the company will be more agile and efficient in the future, reducing potential cash waste.
Some people might be concerned about billionaire Carlos Slim's growing stake in the company. His family business now owns 4.3% of BT Group, but its exact reasons have not been revealed. It may not be a cause for concern, but it would be helpful to have some clarity.
Overall, I like both stocks and will probably add them to my mutual fund later this month.
