You don’t need me to tell you that 2020 has been a difficult year for holders of dividend stocks. Due to a swathe of suspensions and cuts, many income investors have suffered reduced cash streams from their portfolios. Equally, those pursuing dividend reinvestment strategies have had opportunities to buy more shares at cheap prices snatched from them.
However, looking ahead, a number of companies have reset their dividends for sustainable annual growth. With attractive yields — due to current lower share prices — adding to the improved visibility on their future payouts, here are three dividend stocks I’d buy before 2021.
Dividend dynamo
Regulator Ofwat has set a tougher pricing regime for the new five-year regulatory period (2020-25) for water companies. It’s also increased performance targets. However, United Utilities (LSE: UU) is confident it can continue its record of earning additional returns from cost efficiencies and beating the regulator’s performance targets.
UU’s board has set a new dividend policy. This is for annual increases in line with consumer price index inflation, including housing costs (CPIH). Dividend growth is expected to be lower than under its previous policy of increases at least in line with retail price index inflation (RPI). But I believe UU remains an attractive dividend stock for its relatively predictable earnings and dividends.
Buyers of the stock today will pick up this year’s interim dividend, as the ex-dividend date is 17 December. And City analysts’ forecasts for the full-year payout give a sector-leading yield of 4.6%.
Dividend stock #2
Under a new chief executive, insurer Aviva (LSE: AV) is pursuing a strategy of simplification. It’s focusing on its market-leading businesses in the UK, Ireland and Canada. And it’s just set a new dividend policy based on the cash flows from these businesses.
As with UU, buyers of AV stock today will bag this year’s interim dividend. The ex-dividend date is 10 December. The board’s also told us the level of the final dividend it expects to pay. Investors can look forward to a juicy yield of 6.3% on the full-year payout. The board expects the dividend to be sustainable and resilient in times of stress. And to grow by low to mid-single digits over time.
As an added bonus, the company’s in the process of selling non-core businesses, and pledged to return excess capital to shareholders. In other words, special dividends, or value-enhancing share buybacks, are on the cards.
Dividend stock #3
My third pick is gold miner Centamin (LSE: CEY). It has a history of generating cash and paying dividends, although operations and production have been somewhat erratic at times.
However, this should improve after recent changes in both the boardroom and at the operational management level. The new team is very much focused on investing for operating stability and consistency. It’s positioning its world-class Sukari mine in Egypt to reliably produce 450,000-500,000 ounces of gold per annum.
The board intends to distribute at least $104m in total dividends this year and at least $105m in 2021. The company’s already paid this year’s interim dividend ($69m gross), so the final will be lower. However, a $105m payout next year equates to a yield of 5.6% at current exchange rates. As such, CEY is another dividend stock I’d be happy to buy before 2021.