Importance of dividends

To illustrate this further, the FTSE 100 is down over 4% year to date, resulting in a seemingly wasted year. All attempts at share price gains are likely to have been eroded over the year. However, the average yield is 4%, meaning that a dividend-focused portfolio would have maintained its value in the last 12 months.

For this reason, I have looked for one company within the FTSE that pays significant dividends and has high-quality fundamentals. This approach can act as a valuable form of diversification within a portfolio. It is also an excellent way of generating passive income from my investments.

To make the share selection process more efficient, I have used an index filter. This screener looks for companies paying a fair dividend while also having a range of strong underlying fundamentals. As a result, I identified Britvic (LSE: BVIC), the manufacturer of soft drinks within the UK and Europe. The shares struggled with consistent growth over the last few years, rising in 2021 before falling almost 20% in 2022.

However, the yield drew my attention, as it is currently paying a dividend of 3.3%. This is forecast to reach 3.8% next year. Furthermore, the company has produced this dividend consistently for 16 years and has reinstated its dividend growth over the previous year. It also has a dividend coverage ratio of 1.8, indicating that the current level can be comfortably paid using earnings per share (EPS).

Attractive fundamentals

The underlying fundamentals are also attractive, with sensible profit margins and a reasonable level of earnings generation on invested capital. this is a core indicator of a share’s quality. The forecast growth for the company is also encouraging, with turnover expected to grow 13% and EPS to rise over 25%. These growing fundamentals further strengthen my confidence in the dividend, as earnings need to continue rising to ensure yields grow over the years.

However, it is essential to note that there are a few negatives to take into consideration. The current price-to-earnings (P/E) ratio is almost 17. This is reasonably high despite the share price fall over the last year. Additionally, debt as a proportion of market capitalisation is somewhat elevated. In fact, it has increased over its three-year average, which could put additional pressure on dividend payments in the future.

Nonetheless, when combined with strong underlying fundamentals, this current yield presents a good opportunity in the current market. I want to add this dividend share to my portfolio at the beginning of 2023.

Here are two I’d be quite happy to buy now and hold for the next 10 years.

Top dividend stock

I’ve been wanting to buy shares in Tritax Big Box (LSE: BBOX) for a while now. Unfortunately, they always seemed too expensive for me to pull the trigger with confidence. Thankfully, that situation has now changed.

Tritax is a real estate investment trust (REIT). It owns, develops, and manages logistics buildings (like warehouses) for customers such as Tesco, Next, and Amazon on long leases. That’s generally good news for income seekers, even if no dividend stream can be truly guaranteed. The Covid-19 pandemic served as a reminder of that.

Long-term growth

Of course, the relative stability of Tritax’s business model doesn’t mean that all investors will stick around in a crisis. As evidence of this, shares have almost halved in value in 2022 alone.

That said, this has succeeded in bringing the valuation down to a more palatable level. Shares now trade on an appealingly low price-to-book value relative to the rest of the market.

Naturally, it’s hard to say when things might begin to recover. With a raft of economic issues in the UK, Tritax could be dragged lower regardless of management doing all the right things.

However, I’m fine with gradual capital gains. I also can’t see demand for the sort of assets Tritax owns going out of fashion anytime soon. Consumers may be tightening their belts temporarily but the growth of online shopping will surely continue.

Perhaps most importantly, a 5.3% dividend yield is sufficiently chunky, even if it’s clearly not enough to outgun inflation.

Consistent performer

As interested as I am in finally buying a slice of Tritax, I know that running a diversified portfolio remains essential. That’s why my second pick to hold for a decade (or more) is a million miles away from real estate.

FTSE 250-listed drinks firm Britvic (LSE: BVIC) might not get the pulse racing but, thanks to owning a portfolio of brands that people habitually buy even in troubled times, it’s been a solid performer for dividend hunters for many years. In addition to money consistently hitting holders’ accounts, the payout has been hiked nearly every year (2020 was a rare exception).

Right now, Britvic shares offer a forecast dividend yield of just over 4%. Could I get a bigger yield elsewhere in the UK market? Of course! However, a general rule of thumb for me is that sky-high dividend stocks carry more risk of that passive income being cut. It’s often the case that the yield is large only because the share price has tumbled as a result of concerns about the business. In contrast, Britvic’s payout looks set to be safely covered twice by expected profit.

At a price-to-earnings ratio of 12, I’m considering adding this defensive dividend stock to my portfolio when I have the funds to do so.

I reckon there’s good value among stocks in the FTSE 250 index right now. And I’ve bought some of them. 

On track

For example, I’m keen on soft drinks maker Britvic (LSE: BVIC). In July, the company said it’s “on track to deliver a full-year performance in line with expectations.” And City analysts have pencilled in an uplift in earnings of just over 37% for the current trading year to 30 September.

We’ll get the actual figures in the full-year report due on 23 November. Meanwhile, there’s a nice dividend for shareholders to collect. With the share price near 738p, the forecast yield for next year is just under 4.3%.

Britvic could run into operational setbacks ahead. But at the moment it’s trading well with a programme of share buybacks in full swing. And apart from 2020 when Covid hit the markets, dividend progression has been steady.

Solid revenue performance

I also like trading platform provider IG Group (LSE: IGG). In September, the firm posted an 11% increase in revenue. And the directors said the “solid” first-quarter revenue performance will help support the company’s medium-term growth targets.

IG has a multi-year record of growing its revenue, earnings and shareholder dividends. And the company is running a programme of share buybacks. But the dividend is attractive too. With the share price near 753p, the forward-looking yield is just above 6% for the trading year to May 2024.

It’s possible for the business to miss its estimates. But trading is strong right now. And IG was one of those firms that managed to keep up its dividend payments through the lockdowns.

Well positioned

Another that’s captured my attention is Investec (LSE: INVP), the banking, investment and wealth management services provider. The company has grown organically and via acquisitions from being a small finance company in South Africa in the 1970s.

Today, Investec’s core operations focus on the UK and South Africa. And it operates internationally as well. The business now sports a market capitalisation of around £3.6bn and has earned its place in the FTSE 250 index.

September’s pre-close trading update indicated a robust set of figures for the first-half period to 30 September. The company expects a chunky double-digit-percentage uplift in earnings. And we’ll get the actual outcome with the half-year report due on 17 November.

Meanwhile, the directors said Investec is “well positioned to continue to support its clients and pursue growth opportunities in line with its strategic objectives.”

City Analysts expect the dividend to increase by just under 14% in the trading year to March 2024. And with the share price near 401p, the forward-looking yield is above 7%. However, it’s possible the firm could miss its estimates. And that’s particularly true if a global economic downturn gathers pace.

Nevertheless, despite the risks, I’m hanging on to my shares in these three FTSE 250 companies. And I hope to own them for decades.

My guess is most retail investors take a contrarian approach to investing. It’s when the economic clouds are gathering that we tend to find the best long-term bargains.

Resilient retailers

For example, I’m keen on homeware and furniture retail chain Dunelm. On 14 September, the company released a robust-looking full-year results report. Overall sales came in just over 16% higher year on year. And they were 41% up on the 2019 result before the pandemic.

Looking ahead, chief executive Nick Wilkinson acknowledged the current operating and economic environment is “extremely challenging”. However, he said Dunelm emerged from the pandemic as “a bigger, better business”.  And the directors believe the company “has the tools in place to do that again.”

Positive outcomes aren’t certain. But the way Dunelm navigated the pandemic encourages me to believe the business can thrive when the current economic headwinds diminish.

A strong sector

Continuing the retail theme, I also like Watches of Switzerland (LSE: WOSG), the UK and US watch and jewellery retailer. In August, the first-quarter trading update declared a, “strong start to the year with waitlists continuing to extend”.

The report covered the 13 weeks to 31 July. And the figures were impressive. Overall year-on-year revenue rose by 25% at constant currency rates. But within that, revenue from the US shot up by 76%. In the first quarter, US sales accounted for almost 39% of the total. 

Looking ahead, the directors said they are keeping an eye on the wider macroeconomic environment. But they seem unworried. They believe the strength of the luxury watch category “will continue to support long-term, strong and sustainable sales growth”.

Time will tell whether they are right or not. And it’s worth me bearing in mind that operational challenges can hit any business from time to time. Nevertheless, I’ve aligned my portfolio with the fortunes of this apparently thriving business by buying some of its shares. And my plan is to hold on to them for the long term as the underlying growth story plays out.

Robust cash inflow

I’m also holding a clutch of Britvic (LSE: BVIC) shares. The company operates in the soft drinks sector. And it owns some well-known and popular brands such as Tango, Robinsons, Fruit Shoot, and others.

July’s third-quarter trading update revealed year-on-year sales up by just over 11%. And chief executive Simon Litherland said the outcome reflected “resilient demand”. However, looking ahead, he acknowledged the uncertain economic environment could “continue to weigh on consumer confidence”.

But he is, nevertheless, “confident” in Britvic’s ability to deliver a full-year performance “in line with market expectations”. Meanwhile, City analysts following the firm expect earnings to increase by around 37% in the current year to 30 September. And they have pencilled in a further uplift of about 6% for 2023.

Of course, analysts’ estimates can prove to be wrong. But I’m holding on to my shares in the company because of its long record of steady incoming operating cash flow.

Soft drinks giant Britvic (LSE:BVIC) – which owns Robinsons, Tango, and J20 – looks well positioned to reap the benefits of a rumoured move to axe the tax.

The ‘Soft Drinks Industry Levy’ of 2018 imposes a tax of 18p a litre on drinks with eight grams of sugar per 100ml. An even steeper tariff of 24p a litre applies to drinks containing over eight grams of sugar per 100ml.

Although the policy is popular with public health groups, the new PM believes the sugar tax is an illiberal overreach.

A sweet deal

Britvic is a relatively small fish in the big pond of the soft drinks sector, with its £2bn market cap making it about one-hundredth the size of Coca-Cola or Pepsi.

Still, with more than two-thirds of its revenue coming from the UK in 2021, it looks well positioned to get a boost from the end of the sugar tax.

And with a price-to-earnings (P/E) ratio of 18, Britvic seems better value than Pepsi and Coca-Cola, with P/E ratios of 25 and 27, respectively.

Britvic’s 2022 interim results struck a chirpy tone, with out-of-home sales moving back towards pre-pandemic levels.

It also announced a £75m share buyback programme for the 12-month period from May 2022.

In addition, its dividend yield of 3.33% is not to be sniffed at. The drinks juggernaut has a strong record of dividend growth, having nearly tripled its payout between 2007 to 2019 from 11p to 30p a share.

However, the pandemic interrupted this impressive streak of year-on-year increases, bringing the dividend crashing down to 22p.

Bubble trouble

Britvic is facing an important headwind though -– and it’s a gassy one. The price of carbon dioxide — used to make drinks fizzy — has skyrocketed from £250 to £2,800 per metric tonne.

That supply shock is due to companies closing industrial chemical plants as gas prices soar.

This isn’t the first time a CO2 shortage has gripped the UK. In 2018, the government stepped in with £50m of state aid to get US company CF Industries to reopen a fertiliser plant that spews out CO2 as a by-product.

Unfortunately, 60% of the UK’s CO2 supply comes from just two fertiliser factories.

If the UK government could kick the fizzy can down the road last time with just £50m, I suspect it will do so again. After all, CO2 is essential to many industries, including breweries, food packaging, vaccine transportation and even in abattoirs as an anaesthetic.

However, I don’t want to be holding shares in a carbonated drinks manufacturer like Britvic while the crisis is still evolving.  

What’s more, Liz Truss faces stiff opposition to any sugar tax repeal, with Whitehall sources telling The Guardian last week that there are “legal and parliamentary procedural obstacles”.

To me, Britvic looks like a solid consumer staples company, much like Coca-Cola and Pepsi, yet at a more reasonable price.

But until the CO2 shortage ends, I’ll be a passive bystander on the sidelines – possibly sipping a not-so-fizzy Tango while I wait.

To be clear, Britvic (LSE: BVIC)’s present dividend yield of 2.95% is hardly going to set the world alight and gets nowhere close to beating that present inflation rate, but I do believe there is plenty to like about this company.

Firstly, using the numbers from last year’s income statement, we have an earnings per share of 44.3p and dividend payment per share of 24.2p. Dividing one by the other provides a respectable dividend cover value of 1.83. This implies that this level of dividend is perfectly sustainable and well covered by earnings.

An interim dividend payment that was paid in July 2022 (7.80p) showed a 20% increase over the same period in 2021, again suggesting the company is on the right track. The latest Q3 update reported an 11.2% increase in revenues on the same period last year.

In 2020 Britvic signed a 20-year franchise bottling agreement with another soft-drink giant PepsiCo. This includes the production, distribution, marketing, and sales of soft drink brands that include Pepsi, 7UP and Mountain Dew.

Personally, I would be quite comfortable investing in this company that manufactures and distributes such well-known brands, even in this economic climate.   I would expect that the soft drink business would remain a consumer staple while more discretionary spending continues to deteriorate.  The CEO himself is quoted as saying that soft drinks fall into the “resilient” category.

I am aware that Britvic has a presence in Europe, which may be facing even more economic challenges than here in the UK, but am excited by its growing presence in Brazil. It appears that by holding shares in this company I get some emerging market exposure as well.

The company has stressed that it can mitigate the worst of the inflationary pressures that are facing all manufacturers. How it will be able to deal with rising energy costs in particular is less clear. Reassuringly, it describes its supply chain model as “robust”.

While the share price has languished somewhat over the past 12 months by around 16%, my focus here remains one of reliable income and capital preservation rather than capital gains. Therefore, I continue to watch this price action with interest looking for an opportune moment to add Britvic to my portfolio.

Resilient demand

For example, I’m keen on soft drinks provider Britvic (LSE: BVIC). In July, the company posted its third-quarter trading statement covering the period to 30 June. And the headline read: “On track to deliver a full-year performance in line with expectations”.

City analysts expect earnings to rebound by around 36% in the current trading year to September. And they predict an uplift the following year of almost 7%. However, Britvic suffered declining earnings from 2019 to 2021. The pandemic wasn’t kind to the business. And there’s some risk earnings could be lumpy in the future.

However, chief executive Simon Litherland said the year-on-year performance in the quarter “reflects continued resilient demand”. He acknowledged the uncertain economic environment could “weigh on consumer confidence”. But he asserted that soft drinks is a “resilient” category. And he was “confident” Britvic will perform in line with market expectations.

With the share price near 849p, the forward-looking dividend yield is around 3.7% for the trading year to September 2023. It’s possible for any business to miss its estimates if trading deteriorates. However, I find the yield attractive and would aim to hold the stock for the long haul. 

Record order book and profits

I’m also drawn to groundworks and geotechnical specialist contractor Keller (LSE: KLR). At the beginning of August, the company released a robust set of half-year numbers and a positive outlook statement.

Chief executive Michael Speakman said he has “confidence” the business will deliver on expectations for the full year and in the long term. And his optimism is underpinned by “record” profits and a 22% uplift in the order book on a constant currency basis.

City analysts predict single-digit percentage increases in the shareholder dividend for 2022 and 2023. And with the share price near 761p, the forward-looking yield is just above 5%. I reckon that’s a decent yield from a business with a multi-year record of consistent dividend payments. And that record, plus a number of new contract wins, is prompting me to set aside my concerns about any cyclicality in the business.

Strong liquidity and capital

I like the look of Investec (LSE: INVP), which provides international banking, investment and wealth management services in South Africa and the UK.

In May, the company delivered a strong set of full-year results. Chief executive Fani Titi said adjusted earnings came in at “the top end” of previous guidance at just above 55p per share. And that was ahead of pre-Covid levels.

Titi reckons Investec has “strong” liquidity and capital to support growth. And the business is “well positioned” to handle the uncertain outlook caused by inflation. 

City analysts expect a single-digit rise in the dividend for the current trading year to March 2023. And they predict a 14% rise the following year. So with the share price near 450p, the forward-looking dividend yield is running above 6%.

Financial companies like this can suffer from cyclicality of earnings. But there are no sign of weakness ahead and I’m attracted to that chunky yield.

Refreshingly robust

Drinks producer Britvic (LSE: BVIC) would be a go-to pick for me as a novice investor. It’s an easy-to-understand business that boasts big brands and operates in a defensive sector. The most recent trading statement helps back this up.

In the three months to the end of June, Britvic’s revenue came in at just over £431.1m. This was up 11.2% over the same period in 2021. I can’t help but feel the blistering weather conditions we’ve been seeing recently should make for another very decent quarter.

That said, one risk here is that the Robinsons brand owner may not be immune to the cost-of-living crisis. While consumers are generally resistant to switching away from what they know and love, this could become more common later in the year as energy bills soar. As a result, earnings may actually take a temporary dip.

Positively, I’m pretty confident this won’t affect Britvic’s ability to keep returning cash to its shareholders. A dividend yield of 3.4% this year, at the time of writing, is already expected to be covered twice by profit.

And by using this money to buy more shares, I stand to benefit even more when the good economic times return.

None more defensive

A second FTSE 250 share I’d buy as a novice investor would be Worldwide Healthcare Trust (LSE: WWH). As it sounds, this is actually a fund rather than a single company. It has holdings in some of the biggest pharmaceutical groups in the world, such as AstraZeneca, Bristol-Myers Squibb and Pfizer. These are not the sort of companies that are likely to go bust.

Why? Because there are few more resilient markets than healthcare. As incredible as progress in medicine and treatment has been in recent decades, we all need it sooner or later. As a new investor, I’d find this predictability comforting as I find my feet in the stock market.

It’s not all jam. The fact this is an investment trust run by humans rather than machines, which means the management fees are higher. A risk here is that this doesn’t guarantee better performance. In fact, it could lag the market return!

This brings me to my final point…

A safer alternative for FTSE 250 investing

The movement of share prices is impossible to predict in the near term. As a result, I would only ever invest in either of the above if I could deal with losing money, if only on paper, for a while. I’m a firm believer that true investing is about buying shares for years. It’s the Foolish way.

Then again, a cheap exchange-traded fund that tracks the return of the whole FTSE 250 index is another option. Yes, my money might grow at a slower rate. Nevertheless, it will be spread around 250 businesses operating in a vast number of different sectors (e.g. housebuilders, retailers and tech firms) and not just consumer goods or healthcare.

Regardless of experience, it always pays to consider my financial goals and risk tolerance before buying anything!

The stock market recovery is happening. And I’m finding loads of FTSE 250 mid-cap stocks that look poised to advance, powered by strong and growing underlying businesses.

As a recap, the FTSE 250 is a capitalisation-weighted index consisting of the 101st to the 350th largest companies listed on the London Stock Exchange. And it’s a rich hunting ground for long-term-focused stock-pickers like me.

Ahead of expectations

For example, public services provider Serco (LSE: SRP) released an operations update in May. The company said trading had been better than the directors expected. And a “positive outlook” led to an increase in full-year guidance.

Since then, the share price has been responding well. But at around 185p, the valuation looks reasonable. City analysts expect earnings to notch up by a mid-single-digit percentage in 2023. And set against that expectation, the forward-looking earnings multiple is around 14.

Serco has a record of lumpy earnings. But revenue and cash flow have been climbing over the past few years. However, things haven’t always been that way. Several years ago, the outsourcing specialist was making losses. And there’s some risk that trouble could hit the firm’s operations again.

But things look bright right now. And Serco looks like its operations are recovering well. I’m tempted by the stock.

A return to growth

I’m also keen on soft drinks maker Britvic (LSE: BVIC). July’s third-quarter trading update delivered the headline: “On track to deliver a full-year performance in line with expectations”. And City analysts expect earnings to increase by around 36% in the current trading year to September, and by almost 7% the year after that.

However, it’s possible for any company to miss its estimates. Nevertheless, with the share price near 857p, the forward-looking earnings multiple for 2023 is just below 14. And I reckon that’s a fair valuation.

Britvic suffered declining earnings over the past three years. But a recovery looks like it’s underway now. And because of that, I find the stock attractive. Meanwhile, as I wait for growth to gather momentum, there’s a handy dividend to keep me company. Britvic is yielding a shareholder income worth about 3.5%.

Fallen consumer stocks

Bombed-out consumer-facing stocks have been tempting me lately as well, such as Pets at Home (LSE: PETS). In May, the company said the pet care market “remains robust and in growth”. And a rise in customer spending had been “maintained across all categories and channels”.

City analysts predict single-digit increases in earnings for the current trading year to March 2023 and the year following. Meanwhile, with the share price near 320p, the forward-looking earnings multiple is just over 13 for the trading year to March 2024. I think the valuation looks fair. And there’s a handy dividend to collect, estimated to yield about 4%.

A year ago, the share price stood near 488p. And I reckon the company’s operational progress could send it there again. Although nothing’s certain and setbacks can affect any business. Nevertheless, I think Pets at Home operates in a robust sector. And I’m tempted to invest in the shares now for the long term.

Here’s what I’d look for and the stock I like.

Reliable (and growing)

While it’s tempting to jump for the highest-yielder, these can often be the companies to avoid. A huge dividend yield could be because the share price has plummeted due to poor trading. In reality, that cash might never arrive if things don’t improve.

When I look for income-generating shares, I tend to gravitate toward those that have shown an ability to pay up regardless of what’s happened in the wider economy. If this means getting a lower yield than elsewhere, so be it.

I’m also hunting for those that have a solid history of increasing their dividends. This is usually because they’re very good at growing revenue and profit — exactly the sort of business a long-term-focused Fool like me should be drawn to.

With this in mind, here are two companies whose shares I’d be very interested in buying as I swap the rat race for the beach.

2 resilient stocks

Britvic (LSE: BVIC) ticks the boxes mentioned above. Owning a portfolio of ‘sticky’ brands that people buy out of habit has allowed it to steadily increase its cash returns for many years. Right now, it’s set to yield 3.5% in its current financial year. That’s not enough to beat inflation — but few dividend stocks do at the moment! However, it’s an awful lot more than even the best Cash ISA.

Another defensive dividend stock is, well, defence giant BAE Systems (LSE: BA). Sadly, the conflict in Ukraine has shown just how essential it is for nations to protect themselves from physical (and digital) threats. It’s an unfortunate fact of life but it has allowed BAE to increase dividends like clockwork every year.

The FTSE 100 member is set to yield 3.2% as I type. Reassuringly, this payout is expected to be easily covered by profit.

Points to remember

Obviously, there are risks and drawbacks with even the most robust-looking dividend stocks.

As higher prices bite, some shoppers may be forced to switch from Britvic’s drinks to own-brand alternatives. This may temporarily impact earnings which, in turn, could affect the company’s ability to increase cash returns to its shareholders. And BAE is currently susceptible to supply chain constraints. It’s also having issues finding the right people to fill roles across its operations.

There are ways of limiting the damage. Perhaps the easiest way is to ensure that I’m invested in 10-20 very different companies. If one or two are forced to cut their dividends, I shouldn’t see too much difference in the amount of income I receive.

Not just for retirement

As much as I rate these dividend stocks for retirement, it’s important to state that I wouldn’t be against buying them before I get to my golden years. The only thing I need to remember here is that my end result will likely be an awful lot better if I’m able to reinvest my dividends rather than spend them.

Buying more shares allows me to benefit more from the wonder that is compound interest. That’s the secret sauce that could turn a good retirement into an extremely comfortable one.