With the average house price soaring over £20,000 to £256,405 over the last 12 months, a first-time buyer needs to save £30,000 to cover a standard 10% deposit and associated costs. Below are two dividend shares I’d buy now to grow my house deposit.
With savings accounts offering less than a miserly 1%, I’d start by utilising my Lifetime ISA allowance. Any extra savings need to be growing by more than 2% to avoid being eroded by inflation.
When saving for a house deposit, I’d invest in low-risk blue chip stocks with a stable price and dividend. I’d use the power of compound interest to reinvest my dividends back into the stock, and watch my money keep up with rising house prices in a stocks and shares ISA.
We all eat food
Unilever (LSE: ULVR) is the first of my two dividend shares under the spotlight. It has a brand portfolio that I think makes it one of the lowest risk FTSE 100 stocks, manufacturing everything from soap to mayonnaise. It is quite possible that anybody reading this page has bought a Unilever product within the past 24 hours.
Its dividend yield has hovered at around 3% for the past six years, and this year is no different. There are much higher yielding stocks available, but they come with higher risks. For example, popular 8% yielding stocks like Imperial Brands and British American Tobacco are vulnerable to legal changes on tobacco sales. Stocks like Evraz and M&G only started paying dividends in 2017 and 2020 respectively.
The appeal of Unilever is that its products will always be in demand, so I can be confident that my capital is safe; its average share price over the last five years is 4,202p, while its most recent price is 4,259p. This peace of mind can be very important when investing money earmarked for a house deposit.
However, no stock is risk free. Unilever’s share price consistency is not guaranteed. In addition, raw material inflation is likely to increase costs, which will either be absorbed by the company or passed on to price-conscious consumers.
And we all need homes
Persimmon (LSE: PSN) builds home in over 350 locations worldwide and is the UK’s largest housebuilder. Its trailing dividend over the past 12 months is almost 8%; and if you had bought shares five years ago and reinvested every dividend, your return would be a whopping 50.81%.
Such a high dividend would usually be a cause for concern, but Persimmon has over £1,200,000,000 in cash reserves, and is enjoying record-high house prices across the UK. This is primarily due to government initiatives such as the stamp duty holiday, Help to Buy and changing homebuyer priorities.
There are drawbacks though. By September, stamp duty is set to return in full, furlough will end, and Help to Buy will be scaled back. Moreover, the share price is unlikely to rise significantly; Persimmon pays out most of its earnings as dividends, and its dividend yield is more than double the FTSE 100 average of 3%.