Many UK shares have taken a beating so far this year, especially growth stocks. But while the world panics about inflation, interest rates or geopolitics, savvy investors can take advantage.
With shares falling dramatically, dividend yields are on the rise. There are undoubtedly plenty of companies ravaged by the pandemic and will likely be unable to sustain their now high yield.
But I’ve spotted two dividend-paying businesses that could be excellent additions to my passive income portfolio. Let’s explore.
Investing in housing with UK shares
Persimmon (LSE:PSN) is one of the UK’s most prominent home builders. But its share price hasn’t performed all that well. Despite property prices rising and demand for housing still at an all-time high, the stock is down 13% over the last 12 months. So it’s hardly surprising that the dividend yield now stands at a whopping 9.5%!
However, as a long-term investor, the question is can this payout be sustained? Looking at the latest trading update, I believe it can. Home completions in 2021 increased by 7% year-on-year to 14,551. That’s still behind pre-pandemic construction levels of 15,885, but it’s moving in the right direction.
Meanwhile, total revenue has almost fully recovered, thanks to average selling prices jumping from £215,709 in 2019 to £237,050 in 2021. This is actually why the UK share brought back its massive 235p dividend per share payout. And with supply chain issues slowly being resolved, home completions could quickly recover, sending revenues up to new records in 2022.
Of course, there are some looming threats on the horizon. First-time buyer and other government support schemes are coming to an end in March next year, which could dent affordability. This may be enough to send property prices in the wrong direction, potentially compromising the dividend yield.
But over the long term, I don’t see housing demand disappearing, especially with a rapidly expanding population. That’s why this could be one of the best UK shares to add to my dividend portfolio.
A business with a solid dividend future?
In a pre-pandemic world, Ibstock (LSE:IBST) offered a pretty hefty dividend yield. However, with construction projects having ground to a halt in 2020, it’s not surprising the brickmaker had to temporarily cancel its dividends. Consequently, shares of this UK business crashed by 50% in March 2020 and still hasn’t fully recovered.
But despite it currently trading below 2021 levels, the business seems to be in a far stronger position. Looking at the latest trading update, revenue for 2021 is expected to have made a full recovery to £409m – the same as in 2019. And according to management, EBITDA is also anticipated to be ahead of expectations.
Dividends have since been reinstated, albeit at a reduced yield of 2%. However, with manufacturing capacity set to expand later this year, revenues, profits and, in turn, dividends could be on the verge of hitting new highs. That, to me, sounds like a buying opportunity.
There are obviously risks to consider. Being a purveyor of construction materials, demand for its products are ultimately tied with the demand for new homes. If housing affordability were to suffer, the number of newbuilds could drop, undercutting future dividend income.
Yet, despite this risk, I believe this stock could be set to make an impressive comeback. That’s why I’m considering it for my portfolio.