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Dividends from UK shares are never guaranteed. As we saw during the Covid-19 crisis, even the most generous and financially secure company can postpone, suspend, or be axed by shareholders when disasters strike.
But as investors, we can take steps to reduce the chances of disappointing returns. Picking defensive companies that enjoy stable earnings (such as utilities, health care providers, and food manufacturers) is one strategy.
So is choosing companies with strong balance sheets, leading market positions, and diverse revenue streams. This can protect income when economic conditions suddenly take a turn for the worse.
It is also important to spread one's capital over a variety of different stocks. Such diversification reduces the impact of company- and industry-specific factors on investor returns.
Top three stocks
With all this in mind, here are three of the safest stocks on my watch list today.
| Allotment of shares | Forward dividend yield |
|---|---|
| Assura (LSE:AGR) | 8.2% |
| Legal & General | 9.5% |
| Diageo | 3.1% |
As I say, dividends are not a sure thing, and the trader's guesses can sometimes fall. But if the current forecast is correct, an investment of £20,000 spread evenly across these equities will provide an income of £1,380 this year alone.
The highest number of REITs
In this collection, let's dive deep into Assura first. As the chart above shows, this FTSE 250 the company has a long history of dividend growth even in times of crisis.
City analysts expect this proud record to continue, too, as the threat from higher interest rates remains.
As a result, the company's yield increased to 8.5% the following year, to 8.6% the following year.
Higher interest rates lower the net asset values (NAVs) of property stocks and can significantly increase their borrowing costs. But the defensive nature of Assura's operations – it owns and operates primary health care areas, such as GP surgeries – allows it to pay out large and growing profits each year.
The real estate investment trust (REIT) is expanding rapidly, to help it increase income over the medium term. But industry regulations mean that this expensive system doesn't have disastrous benefits.
Under REIT rules, Assura must pay out a minimum of 90% of annual rental income in the form of dividends. Combined, these factors make the business a solid income option in my book.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice.
FTSE 100 dividend stocks
Combined with Legal & General and Diageo in the portfolio, I think I can enjoy a really impressive dividend for many years to come. As you can see, these two stocks also have a long history of continuous dividend growth.
Financial services company Legal & General does not operate in the defense sector. Indeed, future sales may remain at risk if interest rates remain high.
But the FTSE 100 the company's balance sheet has allowed it to consistently grow dividends over the past decade. And with a Solvency II capital ratio of 223%, it's still cash-rich today.
Diageo, on the other hand, is another reliable dividend stock because of its strong position in the strong alcoholic beverages market. Although facing extreme competitive pressure, fashion labels are similar Guinness again Captain Morgan to help reduce this threat.
I also like the wide variety of Footsie's brand in different areas and categories of drinks. This provides benefits (and thus dividends) with more stability.
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