There’s a misconception that if I don’t have any savings, I can’t begin to invest. This isn’t actually true. If I have an income, I can cut back on some spending habits and use this money to put in the markets. One of the best ways I can build long-term savings is to invest in dividend stocks that can pay me income. By reinvesting this income, I can benefit from compounding over time. With that in mind, here are two stocks I’m eyeing up.
Safe as houses
One that I think could help me perform well is Land Securities Group (LSE:LAND). The FTSE 100 real estate investment trust (REIT) has a large portfolio in central London. Over the past year the share price is down 24%, with the current dividend yield at 6.91%.
The fiscal help from the Government in recent weeks should help to support the property sector. Granted, the cut to stamp duty won’t be of much benefit for the business. But the support on energy bills for corporates will. This should allow tenants within the commercial properties to be able to pay rent on time as cash flow issues ease.
Cuts to income tax should have an indirect benefit too. The company owns some leisure and retail parks. If people have more take-home pay, some of this could be spent on holidays and shopping. This boosts revenue for the tenants that pay rent to Land Securities. As a result, occupancy levels should increase, with defaults decreasing.
One concern I do need to be mindful of is the risk of a deeper recession in the UK if the fiscal packages don’t help. In this case, I’d expect to see lower demand for prime central London office space, hurting revenue.
The dividend stock I never knew I needed
The second stock I like is DS Smith (LSE:SMDS). The packaging and recycling business isn’t one of the snazziest companies in the FTSE 100. But with a dividend yield of 5.83%, it’s one that has caught my eye.
Let’s start with the bad news. The share price is down 42% in the past year. This is mainly down to financial results that have highlighted much greater costs associated with transportation and energy. This is a clear risk, but I feel a lot of this is a medium-term issue that will get resolved.
On the flip side, demand is increasing. The full-year results from June showed that revenue increased by 21% from the previous year. Operating profit also jumped by 23%. This gives me confidence that if cost inflation pressures can ease in the coming year but demand stays high, profits will increase. In turn, this should give way to a higher dividend per share.
I’m also a fan of the business because of the resilient demand I expect even during a recession. Recycling will remain a focus whatever the state of the economy is. Even packaging solutions should be strong. Only if we see a material fall in the demand of the goods being packaged would this knock-on to DS Smith.
I’m looking to cut back on some spending over the next month and use these funds to buy both of the above dividend stocks.