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I've been buying UK shares for income protection for a number of years, and right now I see a few very attractive options.
But with the stock market going up, forcing dividend yields down, what would I buy if I could start with £12,000 to invest today?
Lloyds Banking Group
I have always liked financial stocks. And I'll have to pick one that I just grab, Lloyds Banking Group (LSE: LLOY).
Lloyds shares are performing well, up 25% so far in 2024, and that has reduced its forecast dividend yield to 4.7%. So it looks like the best time to buy may be behind us.
Shares are selling for 10 times forward earnings, and that may not be very cheap. But it will decrease only about seven times according to 2026 forecasts.
And then, if the analysts are right, we could see the dividend rise above 6% again. And whenever an opportunity arises, the board reminds us “regular and continuous dividend policy“.
This year is still dangerous. Profits fell last year, and a depressed housing market is hurting. Cautious investors may want to wait and see how 2024 plays out.
National Grid
I measure National Grid (LSE: NG.) as the best income stock I have ever bought. And after the share price dropped in May, this might be one of my best opportunities.
The price fell after the company launched its £7bn rights issue, which took the market by surprise. It's all about expanding its energy infrastructure in the UK and US, as energy production and storage moves to new technologies. That seems like a good thing.
But those people who want to be able to ignore their income stocks, expect them to never make waves, and continue to take dividends, seem to be swayed by it.
It does raise, however, the forecast bond yield to 6.1%, the best it has been for some time, and that is a key attraction.
My biggest fear is that, after doing it once, National Grid might be emboldened to raise new money again in the coming years. But I'd be happy to take that risk.
Taylor Wimpey
My third choice was tricky, as most of my top interests are now all in finance, and I would need to diversify. But it should be Taylor Wimpey (LSE: TW.), which has had a difficult few years.
Interest rates are high, and housing is expensive. And while prices appear to be starting to drop, I don't see the very low prices we've enjoyed recently coming back anytime soon.
A strong housing market can hurt dividends. And that may bring back Taylor Wimpey's recent small price drop.
But two things would make Taylor Wimpey a money buy for me. The dividend has an annual yield of 6.1%. And another long-term housing shortage in the UK. Hmm, didn't the new government say something about improving construction?
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