I’m searching for the best income stocks to buy following recent share price volatility.
Choppiness on the London Stock Exchange has pushed dividend yields at many UK shares through the roof. Should I buy these dividend-paying companies on account of their big yields?
Lloyds Banking Group
On paper, Lloyds Banking Group (LSE: LLOY) appears to be a highly attractive dividend stock. Its yield for 2022 clocks in at a handsome 5.7%. The predicted payout is also covered 2.7 times by anticipated earnings, well above the security benchmark of 2 times.
This FTSE 100 share however carries an unacceptable amount of risk, in my opinion. In recent days, Lloyds has said 30% of its customers sought debt services in the first half of 2022. That number could rise significantly too, in my opinion, as the cost-of-living crisis worsens.
Higher interest rates are helping boost Lloyds’ margins. Bank of England action has increased the difference that the bank charges borrowers and provides to savers. Still, I think the possibility of soaring bad-loan levels and slumping revenues at the bank more than offsets this benefit.
Lookers
Motor retailers like Lookers (LSE: LOOK) face near-term uncertainty as well as supply shortages hammer global car production. Latest data from the Society of Motor Manufacturers and Traders (SMMT) showed new car sales in the UK tanked 24.3% year-on-year in June due to disappointing vehicle output.
The ongoing war in Ukraine and resurgent Covid-19 rates in some regions means part shortages could continue to curb motor production too. Yet despite this risk, I’d still buy car dealership Lookers today.
I think profits here could soar as drivers swap out their petrol and diesel vehicles for ones that run on battery or hybrid power. Indeed, sales of these sorts of vehicles soared 56% and 26.3% respectively last month, according to the SMMT. That’s in spite of the growing cost-of-living crisis.
Lookers’ dividend yield sits at 4.1% right now. And its predicted dividend is covered 4.7 times by estimated earnings. I think it’s a top dip buy at current prices.
Tritax Big Box REIT
I’d also happily invest more of my cash in Tritax Big Box REIT (LSE: BBOX). I think this UK share is a perfect pick for dividend investors. Its designation as a real estate investment trust (REIT) obliges it to pay at least 90% of yearly profits to its shareholders by way of dividends.
This income stock operates a broad portfolio of large warehouses and distribution centres. It therefore has colossal potential as e-commerce continues to accelerate .
This week, DHL announced it would build and expand dozens of collection and delivery depots in the UK. The news perfectly illustrates the bright outlook for companies which help the online shopping sector function like Tritax Big Box.
The dividend yield here currently sits at 4%. I’d increase my holding even though its acquisition-led growth plan could throw up unexpected surprises. These include worse-than-expected tenant demand or high costs.