There’s high volatility in the stock market at the moment. Trying to predict short-term movements is very difficult. Therefore, one of my aims is to focus on receiving dividend income instead of trying to guess market moves.
Picking sustainable dividend shares to buy now can help me to diversify my portfolio away from just growth stocks. Here are two gems I like at the moment.
High dividends, high capital
The first company is Abrdn (LSE:ABDN). The investment manager currently offers a dividend yield of 9.10%, with the share price down 43% over the past year.
Part of the reason for the high yield is due to the falling share price. I do need to be careful of this and note the points causing the slip. The main driver, in my opinion, has been weak financial markets. The underlying assets that the business owns (be it bonds, stocks or others) have fallen in value. Investors therefore are more likely to pull funds out from Abrdn. The -£3.2bn in net flow from 2021 is a case in point here.
However, I think that the share price has fallen to a point now where it becomes an attractive buy. The price-to-earnings ratio of 11.26 is fair value, and the financials of the company are robust. Evidence of this excess capital can be noted from the share buyback scheme announced yesterday. The £300m scheme will take several months to be processed, but is a positive sign and one that investors took well, with the share price spiking when announced.
In terms of dividends, the business has been consistent in paying out income, even during the pandemic. I’ve no reason to think that the strategy will change, especially given the capital the business has at present. Therefore, I’m considering adding it to my portfolio.
A cash cow share to buy
The second company I want to buy into is Direct Line Group (LSE:DLG). In a similar way to Abrdn, the share price is down over the past year (18%). This has helped to push up the dividend yield to 9.53%.
The group has some great brands, including Churchill, Direct Line and Greenflag. Each cater to a slightly different demographic, but all share in providing strong cash flow from insurance products.
Operating profit has been ticking higher, up from the 2020 figure of £522.1m to £581m in 2021. The strong solvency ratio of 176% has allowed the company in the annual report to offer both a generous dividend and also to pursue share buybacks.
Another reason why share buybacks are good in my eyes is that the management team clearly feel the share price is cheap in order to warrant purchasing now. After all, few companies voluntarily buy back shares if it’s trading at all-time highs!
One risk is stricter regulation. The Financial Conduct Authority has recently banned the hiking of premiums for loyal existing customers, something that will negatively impact revenue for Direct Line.
But I think both dividend players are good shares to buy for my portfolio now.