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I recently dumped one of my highest dividend paying stocks, Vodafoneafter it announced a 50% cut in payments starting next year. I am considering reducing my interest in National Network Also, after weak profits and a dividend cut.
But what stocks should I choose instead? I already have five of the top ten dividend-paying companies in the country. Of the remaining five, these three seem the most promising to me.
British American Tobacco
I already have a tobacco stock that pays strong dividends, Imperial Marksbut it is worth considering whether British American Tobacco (LSE:BATS) may be a better option. The main attraction, of course, is the higher yield: 9.4% compared to Imperial's 7.1%. But would it be a better option in the long term?
With a market capitalisation of £55.1bn, British American Tobacco is a much larger company. And despite becoming unprofitable in 2023, it has decent debt coverage and solid cash flows. It is forecast to return to profitability this year, which would make it a more attractive option than Imperial. But for now, negative earnings are a concern that needs to be resolved.
I will keep an eye on the stock and consider buying if the projected growth materializes.
PPP-Windows
Public relations and advertising giant PPP-Windows (LSE: WPP) was enjoying strong dividend growth before COVID-19. Following a 62% reduction, the 60p annual dividend fell to 22.7p but has since been raised back to 40p. That shows an impressive dedication to keeping shareholders happy. It has historically been a reliable and consistent payer and the yield has doubled since 2021.
But growth has been less impressive. The yield has risen in part because the share price is down 23% over the past five years. Also, at 5.4%, the yield is only slightly above average and not well covered by earnings. Compared to higher-yielding dividend stocks like Legal and general either AvivaI don't see much advantage in WPP.
I could add an additional level of sector diversification to my portfolio, but for now I think I am sufficiently diversified.
GSK
Pharmaceutical giant GSK (LSE:GSK) has the lowest dividend yield on this list, at 3.9%. With so many other higher-yielding stocks, why consider it? Partly because it is one of the UK's largest companies, at £62.6 billion. Among the top 10 UK stocks by market cap, only blood pressure and HSBC Bank have a higher performance.
It has also paid a dividend consistently for more than 20 years, although it fell 27% in 2021. Still, at £1.10, earnings per share (EPS) far outweigh the 58p dividend. That reduces the chance of a split cut, and the yield is forecast to rise to 4.4% over the next three years.
Overall, I think GSK is my best choice, but it is not without risks. UBS It recently downgraded GSK from buy to neutral, citing ongoing legal issues regarding its drug. Zantac and uncertainties about its shingles vaccine, ShingrixLegal settlement costs and a possible reduction in U.S. sales could hurt the stock price.
Although I have GSK firmly on my watchlist, I will wait for its second quarter earnings results on July 31 before making a buying decision.
