Recent stock market volatility leaves plenty of opportunity for me to pick up a bargain or two. So I’m taking time during the Queen’s Jubilee holiday to dig out the best dividend stocks for me to buy when the market reopens on Monday.
These top income stocks have all fallen in value recently. As a result I think they could be brilliant dip buys. Here’s why.
Persimmon
What it does: A nationwide housebuilder which sold 14,551 homes in 2021.
P/E ratio: 8.6 times
Dividend yield: 10.9%
Property developer Persimmon (LSE: PSN) offers one of the biggest dividend yields on the FTSE 100 today. The business has fallen in value as investors have fretted over the impact of interest rate rises on homes demand.
This is a threat that share pickers need to take seriously. But I’m encouraged that housing demand has remained rock-solid so far in 2022. Latest research from Nationwide in fact shows that house prices still rose a healthy 11.2% in May despite the cost-of-living crisis and interest rate hikes.
Evidence like this suggests that homes supply continues to lag the rate of demand. It’s a theme I expect to persist amid historically low interest rates and the probability that government will continue to support first-time buyers.
It’s my opinion that Persimmon remains a white-hot dividend stock for me to buy. And particularly as it still trades on a forward price-to-earnings (P/E) ratio of below 10 times.
Residential Secure Income REIT
What it does: A residential landlord with exposure to shared ownership and retirement property.
PEG ratio: 1
Dividend yield: 5.3%
A similar shortage of rental properties also makes Residential Secure Income REIT (LSE: RESI) an attractive share for me to buy today.
Amid a flood of new regulations, higher taxes and running costs, the number of private landlords in the UK has slumped in recent years. This in turn has propelled rent levels (and consequently profits at firms like Residential Secure Income) through the roof.
Latest data from HomeLet showed rent for the average new tenancy hit £1,091 a month in April. This was up 9.5% year-on-year. No wonder then that City analysts expect earnings at Residential Secure Income to soar 20% in this fiscal year alone.
It has fallen back into penny stock territory following recent market volatility. And as a result it trades on a price-to-earnings growth (PEG) ratio a fraction below the bargain benchmark of 1.
Now, the stock doesn’t have dividend yields as big as that of Persimmon. But one advantage it does have for income investors is that it’s classified as a real estate investment trust (or REIT). This means it has to distribute a minimum of 90% of annual profits to shareholders by way of dividends. I’d buy it even though a failure to secure acquisitions could hit its growth plans.