The average dividend yield for the FTSE 100 is currently 3.64%. This is a generous figure, especially when I compare it to other income-paying assets. Therefore, as we hit May, I’m looking to increase my allocation to some of the top dividend stocks to benefit from this. Here are three that I like at the moment.
Benefiting from higher commodity prices
I don’t think there’s much surprise that some of the metal and mining companies are doing well right now. Wholesale prices for commodities has been surging over recent months due to a variety of factors. A lot centres on the situation in Ukraine and also concern about the global economic recovery. However, I don’t see commodities such as oil or gold materially weakening even if peace is established tomorrow. That’s why I think companies in this sector are top dividend stocks.
For example, I’m considering buying shares in Antofagasta (LSE:ANT) and Anglo American (LSE:AAL). The current dividend yields are 7.35% and 6.57%, respectively. This puts them both comfortably above the index average.
The companies have different specialisms, so I’d consider buying both even though they operate in the same broad sector. Antofagasta operates more in copper mining, whereas Anglo American is the largest producer of platinum. Yet both companies also mine for other commodities in smaller quantities.
I’d expect both firms to perform well this year, enabling higher profits to be paid out to shareholders in the form of dividends. This should enable me to benefit when the next payout comes due.
As a note of caution, the location of some projects does present some issue. Sometimes these are in countries with unstable political situations or are third-world. This can make operations somewhat unpredictable if things turn sour quickly.
A top supermarket dividend stock
Another top dividend stock I’d buy in May is J Sainsbury (LSE:SBRY). The UK supermarket has seen the share price drop by almost 20% in the last three months, pushing the dividend yield to 5.48%.
The main reason for the drop is the rise in grocery inflation. This is making core food and drink items more expensive. The business has come out and noted that this will impact profits this year.
Although this is a risk, I think the drop is a good short-term opportunity to buy the shares. Fundamentally, people will still need to buy food and drink. The supermarket will likely see a change in behaviour towards more own-brand products. It might also lose some customers to cheaper competitors. Yet I don’t think this is enough of a negative impact to cause serious financial problems. Based on the 20% drop, I think my risk versus reward for a top dividend stock is attractive right now.
Given the high dividend yields of the three stocks mentioned, I’m looking to add all three to my dividend portfolio over the coming month.