Every month, we ask our freelance writer investors to share their top ideas for dividend stock picks with you — here’s what they said for August!
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DS Smith
What it does: A provider of sustainable packaging solutions, paper products and recycling services.
By Paul Summers: Down a third in value in the last year. DS Smith (LSE: SMDS) has given up most of the share price gains it made in the post-pandemic recovery.
But I wonder if the market has become too bearish. The new financial year has “started well” according to the company and management expects “further substantial improvement in performance” in FY23.
An increase in capital expenditure was never likely to be celebrated but, on a more positive note, the shares now trade at just eight times forecast earnings.
The dividends look pretty solid, too. DS Smith is forecast to yield 5.7% in the current financial year. This payout should be covered by expected profit if analyst predictions are hit.
As a source of passive income as part of a diversified portfolio, I think the shares are worth a closer look.
Paul Summers has no position in DS Smith
Clarkson
What it does: Clarkson provides an array of shipping services such as shipbroking.
By Royston Wild. Resilient trading at shipbroking giant Clarkson (LSE: CKN) suggests (to me at least) that this remains a top dividend growth stock to buy.
Cyclical businesses like this face the risk of cooling profits as global growth stalls. But trading conditions at Clarkson remain white hot (it said last month that it expects profits in 2022 to come in “materially ahead of its previous expectations.”).
Shipping rates remain solid as vessel shortages of all classes roll on. Meanwhile, the war in Eastern Europe has pushed up rates, too, as ships bound for Russian and Ukrainian ports are diverted to already-packed ports elsewhere. This is removing even more capacity as vessels sit waiting to unload their cargoes.
City analysts think Clarkson’s earnings will soar 22% year-on-year in 2022. And so they are tipping exceptional dividend growth as well, to 92.2p per share. That would represent a 10% year-on-year increase.
This projection creates a healthy 2.7% dividend yield. And the predicted dividend payment is covered 2.3 times by anticipated earnings, too.
Royston Wild does not own shares in Clarkson.
Hargreaves Lansdown
What it does: Hargreaves Lansdown is the largest provider of retail-focused investment services in the UK.
By Edward Sheldon, CFA. Hargreaves Lansdown (LSE: HL) shares have experienced weakness in 2022 and this has pushed the dividend yield up to a very attractive level. With analysts expecting the group to pay out about 40p in dividends for the year ended 30 June 2022, the prospective yield on offer here is currently around 4.6% – considerably higher than the average FTSE 100 yield.
But this stock isn’t just about dividends. In my view, it has the potential to reward investors with healthy long-term capital gains as well. The reason I’m bullish here is that Hargreaves Lansdown is essentially a play on the world’s stock markets. And markets tend to rise over time.
One risk to consider here is that new competitors are emerging. These companies could potentially steal market share from Hargreaves. However, with the stock currently trading on a P/E ratio of less than 20, I think a lot of this risk is already priced into the stock.
Edward Sheldon owns shares in Hargreaves Lansdown
DS Smith
What it does: DS Smith is the UK’s leading manufacturer of recycled paperboard and corrugated packaging.
By Zaven Boyrazian. With consumer spending declining, e-commerce businesses haven’t had the best time in 2022. Yet, looking at the bigger picture, our current economic environment is ultimately a short-term problem. And online spending continues to grow as a proportion of total retail spending.
That’s why DS Smith (LSE:SMDS) has caught my attention. The cardboard manufacturer doesn’t have an exciting business model. But it does provide a critical product for the e-commerce sector.
With investor confidence at record lows, the stock has dropped by over 37% in the last 12 months. Yet looking at the latest results, sales and profits are up by double digits. But more excitingly, its return on capital employed has jumped from 8.2% to 10.8%, on track to hitting management’s long-term target of 20%.
In other words, despite headwinds, DS Smith is generating impressive growth and value for shareholders. Paring that with a discounted share price spells a buying opportunity for my portfolio, in my opinion.
Zaven Boyrazian does not own shares in DS Smith.
M&G
What it does: M&G is an investment manager that offers savings and investment products across a number of countries.
By Christopher Ruane. For M&G (LSE: MNG), could August be a big month?
I think the answer may be yes. Interim results are due to be released on 11 August. The company’s policy of maintaining or increasing its dividend annually seems to make the shares attractive – if the firm can keep delivering on it.
Last year, the interim dividend rose by 1.7%. But the full year dividend increase was a meagre 0.4%. With a strong brand, long experience and a substantial customer base, the firm has a recipe for profitability. I see the risk of clients withdrawing funds as a threat to profits in coming years. The company reported net inflows of client funds last year. Hopefully that positive trend has continued.
Meanwhile, the dividend yield is 8.4%. So I do not mind if M&G delivers another modest rise or none at all. As long as the firm does not cut its dividend, I think the income opportunity here is attractive.
Christopher Ruane owns shares in M&G.
Ashmore
What it does: Ashmore is an asset management firm that has a presence across the globe and specialises in emerging market investing.
By Andrew Woods. Ashmore (LSE:ASHM) has been consistent with its dividend policy over the past five years. During this time, it has paid well above 16p per share every year. For the year ended June 2021, the firm paid a total dividend of 16.9p per share. At current levels, this equates to a dividend yield of 7.99%. For me, this is appealing.
In the current economic climate, however, customers have generally been more risk-averse, meaning that emerging market investments have suffered. This has been caused by a multitude of factors, including inflation and interest rate hikes. To that end, in June the company’s assets under management declined by 18.3%, quarter on quarter.
However, for the six months to 31 December, the business beat earnings expectations of £89m, instead posting £92m. Furthermore, over the long term the company continues to report consistent growth. Between 2017 and 2021, for instance, pre-tax profit and revenue continue to increase markedly.
Andrew Woods owns shares in Ashmore.
Vesuvius
What it does: Vesuvius makes equipment used in foundries to handle molten metal and control its flow.
By Roland Head. Vesuvius (LSE: VSVS) can trace its history back over 100 years, to the fast-growing US steel industry of the early 20th century.
Today, the company’s product range is broader and more sophisticated. But its core specialism of handling molten metal is unchanged. I think that’s attractive — this business is a market leader in a very specialised market.
Another big attraction for me is that more than 95% of the parts Vesuvius sells are consumables. These need regular replacement.
The only real risk I can see is that customer demand could slow during a severe recession.
I see that as an acceptable risk, especially as Vesuvius is tapping into new growth markets like wind energy.
Management recently reported strong trading and a positive outlook for the rest of the year. Vesuvius shares currently offer a well-supported 6.5% dividend yield. I see this dividend stock as a good buy in August.
Roland Head does not own shares in Vesuvius.