Home Share Market 2 top UK dividend stocks I think are bargains   

2 top UK dividend stocks I think are bargains   


UK money in a Jar on a background

Image source: Getty Images

Sometimes a share has a high dividend yield but is a value trap. Profits collapse, payouts get cut, and the share price falls in response. But other dividend stocks can turn out to be a real bargain, offering substantial income potential at an attractive price.

Here are a couple of such shares I would buy for my portfolio today if I had spare money to invest.

M&G

The asset manager M&G (LSE: MNG) benefits from a brand name that is known to a large number of actual and potential customers. That should be able to help it grow its business in future. I think it could also benefit from long-term growth in demand for financial services.

During the first half of the year, assets under management and administration fell by around 2%. However, that was driven by market conditions pushing down the value of assets. The business saw net inflows of client funds in the first half.

I see that as positive as one of the risks the City had been pricing into the M&G valuation in the past couple of years was an outflow of funds. That is still a risk, but hopefully the positive momentum can continue.

Meanwhile, the M&G share price continues to reflect some investor scepticism in my view. It has fallen 2% over the past year and currently the dividend yield is a juicy 9.6%. That makes it look like a bargain to me, which explains why I hold it in my portfolio.

Tesco

Another share that has fallen in the past year, but more steeply, is retailer Tesco (LSE: TSCO). The Tesco share price has fallen 16% in 12 months.

Like M&G, Tesco benefits from owning a familiar brand in an industry I expect to see robust demand in the long term. The dividend has been growing strongly in the past couple of years, pushing the yield up to 4.9%.

I see risks for Tesco. Inflation is pushing up the cost of goods, but Tesco may struggle to pass on such rises in full to shoppers who are tightening their belts. That could lead to profit margins falling.

But the UK’s largest retailer is a proven operator. Not only is its brand strong, Tesco benefits from a large store estate and sizeable digital operation. It enjoys economies of scale that can help it make profits even when many other retailers may struggle to do so.

I think the Tesco share price could be a bargain for my portfolio. The company has long-term strengths and an attractive dividend yield. I see more potential for dividend growth in coming years, as the payout remains below what is was before accounting problems surfaced at the retailer in 2014. They have long since been resolved and I expect Tesco to keep a strong position in the UK grocery market for a long time yet.





Source link

RELATED ARTICLES

Oil prices rise after OPEC+ keeps output cut targets, China eases COVID curbs By Reuters

© Reuters. FILE PHOTO: Oil tankers sail along Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel By Sonali...

Buying this UK share was my biggest mistake in 2022!

This has been a turbulent year for global stock markets. 2022 has seen inflation soar, energy bills skyrocket, and Russia invade Ukraine....

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Indonesian volcano erupts, releasing river of lava

Indonesia’s tallest volcano erupted on Sunday, sending a river of lava across the terrain of the country’s most populated island, and clouds of...

Ripple files final submission against SEC as landmark case nears end

The most talked about crypto lawsuit involving the United States Securities and Exchange Commission (SEC) and Ripple is approaching its conclusion after a...

Apple and Amazon resume advertising on Twitter

A file photo of Elon Musk | Photo Credit: REUTERS Amazon.com Inc. and Apple Inc. are planning to resume advertising on Twitter, according to media...

Oil prices rise after OPEC+ keeps output cut targets, China eases COVID curbs By Reuters

© Reuters. FILE PHOTO: Oil tankers sail along Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel By Sonali...

Recent Comments