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The stock market has taken a hit in 2022 and dividend stocks haven’t been spared. This year, the share prices of many popular UK dividend-paying companies are down 10%, or more.
The good news for long-term investors like myself is that this share price weakness has pushed dividend yields up. With that in mind, here’s a look at three top dividend shares I’d buy now, before the market recovers.
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One of my top picks for dividends right now is Unilever (LSE: ULVR). It’s a consumer goods company that owns many well-known brands. The stock is currently sporting a prospective yield of around 3.8%, which is attractive in today’s low-interest-rate environment.
What appeals to me about Unilever is that it’s a ‘defensive’ company. Unlike ‘cyclical’ companies, which are impacted significantly by economic conditions, Unilever tends to see fairly stable demand for its products (soaps, deodorants, cleaning products, etc) throughout the economic cycle. This is a valuable attribute right now, as we could be heading into a recession.
Meanwhile, thanks to its strong brands, the company has pricing power. This should help it offset the negative effects of inflation.
Of course, Unilever could still be impacted by a significant economic slowdown. We may see consumers turn to cheaper, own-brand products.
All things considered, however, I think this is a solid dividend stock for my portfolio right now.
I also like the look of Diageo (LSE: DGE) at the moment. It’s one of the world’s leading alcoholic beverages companies. The yield here is currently about 2.2%.
Like Unilever, Diageo has defensive qualities. When economic conditions are strong, people drink alcohol. And when economic conditions are weak, they drink alcohol (often to drown their sorrows!). This means Diageo is a sleep-well-at-night stock.
Diageo also has a very attractive long-term growth story though. Over the next decade, we are going to see millions more consumers in the world’s emerging markets (where the company generates a lot of its sales) who can afford its beverages. This should propel revenues, earnings, and dividends higher.
Diageo is not the cheapest dividend stock around. Currently, the forward-looking P/E ratio here is about 22. This adds a little risk.
I’m comfortable with the valuation however, given the company’s defensive attributes and long-term growth potential.
Finally, I also see 3i Group (LSE: III) as a good dividend stock to buy for my portfolio. It’s a leading private equity and infrastructure investment firm. The prospective yield here is about 4.3%.
One reason I like 3i right now is one of its largest private equity division investments is Action – a leading European discount retailer. This could have a lot of potential in the current economic environment, where consumers are looking to cut costs. In a recent update, 3i advised Action had achieved “very strong sales growth” in the year to date.
Another reason is that the company offers exposure to infrastructure. Generally speaking, infrastructure assets tend to offer protection against inflation. Often, they have contracts that are linked to it.
It’s worth pointing out that this dividend stock can be volatile at times. This is a risk to be aware of. However, with the stock currently trading at just six times this year’s earnings estimate, I think it’s worth the risk.