Here are three dividend-paying companies with news coming our way in October.

Housing cash

Housebuilders had been suffering as interest rates were rising. And now that it looks like the Bank of England could be forced into even bigger hikes by the slump in the pound, fears are growing further.

As the final week of September progressed, more and more mortgage lenders withdrew mortgage deals as costs became increasingly uncertain.

Against that background, Bellway will deliver full-year results on 18 October. Bellway shares have fallen 50% in value over the past 12 months.

The results will be pretty much out of date even before they’re posted. But I’ll be watching for any hints at how business has gone since year-end, and where the company thinks its outlook is going.

If it holds, the forecast dividend would yield 6.6% this year.

Fund management

The whole investment management business has slumped, with companies suffering cash outflows as investors seek safety elsewhere. Jupiter Fund Management (LSE: JUP) is among them, with a whopping 60% share price fall over the past 12 months.

Jupiter should be releasing a third-quarter trading update on 20 October, and I’ll be looking for anything that might affect the dividend.

For the first half, the company maintained its dividend of 7.9p per share, unchanged since the same period a year previously. At the time, Jupiter said it “remains a well-capitalised business with a strong balance sheet“.

If the board also maintains the final payout, we could see a whopping 18% full-year yield. But there’s big uncertainty there, considering the worsening economic outlook.

Oil dividends

Oil and gas shares have been among the best performers in 2022. BP shares are up 30% over the past 12 months, while Shell (LSE: SHEL) has climbed 40%.

We’ll have a Q3 update from Shell on 27 October. Oil is dropping a bit, to around $85 for a barrel of Brent Crude. But I still expect to see the cash flowing strongly.

Forecasts put this year’s dividend yield at 3.9%, which is not one of the biggest around. But it’s one of the few in the FTSE 100 that haven’t been boosted by falling share prices in 2022.

Analysts see the dividend holding steady over the next couple of years. But that depends a lot on where the oil price goes. Any further declines could put recent share price gains at risk.

Verdict

There are clearly risks with all of these, and they might not be my top picks in their individual industries. But they’re all in sectors that I think have solid long-term dividend potential.

Things could remain tough for the broader FTSE 250 over the short-to-medium term. London second-tier stock index comprises a greater proportion of UK-focussed shares than, say, the more international FTSE 100. So forecasts that Britain will record zero growth in 2023 is a worrying omen.

However, things are not all bad. Many top dividend-paying stocks should still be in good shape to pay market-beating dividends, regardless of this turbulence.

What’s more, 2022’s extreme share price weakness leaves many top FTSE 250 dividend stocks trading on super-low valuations. Bellway (LSE: BWY) is one rock-solid value stock I’d buy right now.

Record sales

Rising interest rates pose a threat to housebuilders as they put stress on buyer affordability. But, so far, these battered stocks have remained resilient despite constant Bank of England (BoE) action. And this fills me with confidence.

Bellway’s latest financial update underlines the underlying strength of the industry. On Tuesday it said that revenues rose 13% in the 12 months to July. They hit a record £3.5bn for the period.

Completions meanwhile rose 10.5% year-on-year to an all-time high of 11,198 homes. And the closing order book comprised of 7,223 homes, up from 7,082 previously, and with a value of £2.1bn.

Bellway has ambitious plans to make the most of these favourable trading conditions too. It remains on track to complete on 12,200 homes in the current financial year in a further boost to earnings.

Market fundamentals

As an investor, I think housebuilders like Bellway are packed with potential. Lacklustre housing policy in recent decades has left a massive shortage of available homes. And there is currently no sign supply is suddenly set to improve.

At the same time, lending conditions for new homebuyers remain ultra supportive.

As I said earlier, rates are rising and costs for property owners are increasing. But intense competition among Britain’s mortgage providers means home loan costs remain below historical norms. And they are likely to come down again if, as expected, the BoE begins cutting interest rates in 2023.

What’s more, the Deposit Unlock government incentive scheme should support demand for Bellway’s homes despite the end of Help to Buy next March. This scheme allows first-time buyers and home movers to buy a new-build with just a 5% deposit.

Stunning all-round value

Bellway share price has collapsed around 27% in 2022. It’s a fall much larger than the broader FTSE 250. And it leaves the company trading on a forward P/E ratio of just 6.1 times.

This low reading, combined with the company’s 6% dividend yield, makes it a top value stock, in my opinion. I’d buy it today to watch it soar in value as market confidence returns.

Right now, I’m seeing some very attractive dividend yields, which I think look like definite long-term buys. But what do I mean by “no-brainer”?

I’m thinking about shares in business that tend to suffer in economic downturns, like we’re in right now. But they’re in industries that have a track record of bouncing back when things improve.

Fund management

In tough times when stock markets are weak and investors are scared, investment managers will inevitably suffer.

That’s exactly what’s happened at Jupiter Fund Management (LSE: JUP). The firm has seen an outflow of funds, and poor performances in some of its holdings. Taken together, that doesn’t look good. And the Jupiter share price has slumped.

The forecast dividend yield has shot up above 10% now. To sound a caution, I wouldn’t be surprised if it’s cut. And we could be in for a further shaky spell for Jupiter shares.

But every stock market downturn I’ve ever seen has been followed by a recovery. And those who manage investments for their customers tend to do well when that happens.

Insurance

Inflationary pressures have hit insurers, particularly specialist ones. And that’s sent the Direct Line Insurance (LSE: DLG) share price plunging.

But it’s also pushed the forecast dividend yield up, again to more than 10%. Will there be a dividend cut? I think the possibility is quite high. Still, investors in the insurance business should expect this, shouldn’t they? I mean, they pay out when times are tough, and they suffer price competition when inflation is high.

So if I invest in insurance, I do so for the long term, with enough time to cover the ups and the downs. And when there’s a downturn? Well, I disagree with those who think it’s time to sell.

I expect tough times for the insurance sector for a while yet. But over the decades, it’s a highly cash-generative business. And I’d buy when it’s down, for better long-term dividend yields.

Housing

My simple, no-brainer, thinking about the housebuilding industry goes something like this… We’re suffering a chronic housing shortage in the UK, which is almost certain to be with us for a long time yet. So it’s surely a good business to invest in, isn’t it?

And after this year’s price falls, Bellway (LSE: BWY) has to be a good stock to buy now, right?

Does it need to be any more complicated than that? The City seems to think so. The predicted dividend yield is now above 6%. Will it be cut? I don’t know, but it might. And the whole business might face gloom and despondency in the next couple of years.

Long-term

But again, the strategy of investing in dividend stocks with long-term strength when they’re in a short-term downturn seems obvious to me.

With all of these, I think investors should be prepared to suffer some short-term pain. But what does that matter to those with decades-long investing horizons?

Well, that approach might be simple. But it’s not without risks, and it does overlook a whole horde of dividend shares out there that I think are cheap at the moment.

So today, I’m looking at three companies that I rate as having solid long-term income potential. But they don’t figures in lists of biggest yields today.

Contrarian

My first pick is one that investors have been shunning all year. It’s Royal Mail Group (LSE: RMG), whose share price has fallen by more than 40% over the past 12 months.

The situation described in the company’s Q1 update is not pretty, with group revenue down 5.1%. An adjusted operating loss added to the gloom. Oh, and it looks like we’re in for strike action too, which has further hit the share price.

But what was it Warren Buffett once said? That he tries to be greedy only when others are fearful? Well, all the fear has pushed the forecast dividend yield above 7% now. And analysts have it reaching 8% by 2024.

It might come under pressure, as Royal Mail continues with its transformation plans, and I think we’re looking at a risky buy. But I reckon this could be a good time to lock in some decent long-term income now.

Houses

I can’t look at long-term income shares without considering the building sector. And today my pick is Bellway (LSE: BWY). And look at that last little bit of the chart above — it might even be starting to pick up now.

While the Bellway share price is down, its forecast dividend yield has been pushed up above 5.5% now. And if analysts have it right, it could climb above 6% by 2024.

Cost pressures are mounting on the business, through supply chain difficulties and inflation. But in its June update, Bellway told us that “ongoing positive price momentum continues to offset build cost inflation“.

If we’re in for a prolonged economic downturn, I can see pressure continuing on the whole sector and maybe more share price weakness. But I see strong long-term cash generation, and a chance to nail down some healthy dividends.

Sentiment

With sentiment towards investment managers, I just have to include one today. And it’s Ashmore (LSE: ASHM), whose share price is down 45% in the past 12 months.

Ashmore is under more pressure than some of its peers, as it focuses on emerging markets. During a global economic crisis, that’s not where most people want their money. And it’s seen assets under management falling due to a combination of cash outflows and negative investment performance.

But if they hold up, forecast dividends for 2022 and beyond would yield around 8%. Yes, the dividend could well come under pressure. But even if it’s cut, I see a good chance it will bounce back in the long term. Even with the emerging market risk, I think this could be another income share to tie down now.

From the FTSE 100…

One company that’s shown itself to be as reliable as they come for dividends is tobacco giant Imperial Brands (LSE: IMB). With the exception of the anomaly that was 2020, the company has consistently bumped up its cash returns year after year. And right now, the shares yield a monster 7.7%.

This may be one reason why Imperial has done well year-to-date — up 13% in value. When times are tough, investors seek out businesses where earnings are fairly predictable. And despite suggestions that the tobacco industry might be in terminal decline, I can still see people puffing away for a long time to come.

Despite recent gains, Imperial trades on an undemanding valuation of seven times forecast earnings. That’s still cheap relative to other companies in the consumer defensives sector.

My concern here is whether we could see some profit-taking when growth stocks come back into favour. So, Imperial would not be a stock I would buy for income and capital gains. There’s also the issue of increasing — and understandable — anti-smoking regulation. But I still see this as a reliable dividend stock.

Safe as houses?

Since spreading my cash around different sectors is a good way of reducing risk, my other two top income stocks for today have nothing to do with tobacco.

FTSE 250 housebuilder Bellway (LSE: BWY) is another reliable dividend payer. It’s set to yield 6% in the current financial year.

Even so, Bellway’s record of hikes isn’t perfect. Like Imperial, the Newcastle-based business dropped the dividend substantially as the pandemic hit the UK. However, cash returns bounced back 135% in 2021 and are now nearly at pre-Covid levels. The payouts look likely to be easily covered by profits too.

Of course, a cooling of the housing market wouldn’t be great news. Then again, the huge and ongoing demand for quality housing in the UK suggests any reduction would be temporary if it happens at all.

Trading at less than six times earnings, a lot of negativity looks priced in to me.

Hot stuff

Today’s third FTSE 350 dividend stock has a lower profile than either Imperial Brands or Bellway. Nevertheless, heat treatment and thermal processing supplier Bodycote (LSE: BOY) is another reliable source of dividends. Interestingly, it didn’t drop its payout in 2020!

Can this streak continue? Well, the company announced that trading in the first three months of the year had been in line with expectations. However, it also stated that it was beginning to see “unprecedented volatility” in demand for its services “driven by material shortages at customers“. This makes for a foggy outlook, at least in the short term.

Still, I’m pretty confident that the income stream shouldn’t be interrupted. The 3.9% yield should be safely covered by profit unless trading falls off a cliff.

The shares also look reasonably priced to me at 13 times forecast earnings.

House builder

As a quick reminder, Bellway is one of the largest house builders in the UK, with roots stretching back over 70 years. It builds a range of apartments, penthouses, and family homes throughout the UK. Interestingly for me, it targets brownfield land, which are areas specifically ear-marked for urban renewal by the government.

So what’s happening with Bellway shares currently? Well, as I write, they’re trading for 2,275p. At this time last year, the stock was trading for 3,220p, which is a 29% drop over a 12-month period.

I am not worried by Bellway’s share price drop. In fact, I see it as an opportunity to pick up cheaper shares in a quality business operating in a burgeoning market.

FTSE 250 stocks have risks

Recent macroeconomic headwinds have put real pressure on house builders and Bellway is no different. Firstly, soaring inflation and the rising cost of raw materials, crucial to building homes, have put pressure on profit margins. With costs rising and profits under pressure, performance and shareholder returns could be squeezed. Passing these costs on to customers may result in a loss of custom to competitors. Furthermore, the supply chain crisis could have a material impact on operations too.

Next, the house building sector in the UK is saturated and competitive. All businesses in this space, including Bellway, are vying for market dominance and looking to offer value for money, quality homes, and a unique selling point to their customers. A loss of customers to other competitors, such as FTSE 100 incumbent Persimmon, could affect performance and shareholder returns.

Why I’d buy Bellway shares

So to the positives then. Firstly, the house building market is a burgeoning growth market here in the UK. It is a well-known fact that the demand for homes is massively outstripping supply. Bellway could continue growing its business, as well as performance if it can continue building and selling quality homes to meet this demand.

Next, Bellway shares could boost my passive income stream through dividend payments. The shares currently offer a dividend yield of close to 6%. It is worth remembering the FTSE 250 average is just under 2%. I am aware that dividends can be cancelled at the discretion of the business at any time, however. Furthermore, the shares look dirt-cheap to me on a price-to-earnings ratio of just six.

Finally, dividend payments and growth initiatives are underpinned by performance. Although I am aware that past performance is not a guarantee of the future, I am buoyed by Bellway’s track record. Looking back, it grew revenue and profit for a few years before the pandemic struck. Since that time, it has bounced back to surpass pre-pandemic trading too. I expect this upward momentum to continue despite the challenges noted above.

I believe Bellway shares are an excellent way to boost my passive income stream and to continue doing so based on the current housing shortage in the UK. This growth could underpin performance and dividends for years to come.

The beauty lies in the dividend yields. If we buy when share prices are low, dividend yields are higher. And we get the benefit of that higher yield every single year we hold the shares we buy. Right now, I see so many opportunities it’s hard to choose which shares to buy. But I’ll try.

I’m going to pick a company from the FTSE 100, one from the FTSE 250, and an investment trust.

Bank on insurance

The Legal & General (LSE: LGEN) share price has dipped 20% since January’s peak.

I actually think that’s reasonably resilient, with the financial sector hard hit this year. The fall puts the shares on a forward price-to-earnings (P/E) ratio of 7.5. That’s about half the current FTSE 100 average.

And while I expect financial stocks to fall below average, I reckon that’s too cheap. It’s surely because of the uncertainty that insurers face during tough times, and the risk is genuine.

But, more importantly, the forward dividend yield for 2022 stands at nearly 8%. And it rises above 8.5% on 2024 forecasts. These are very uncertain times, and these yields are far from guaranteed. But I rate Legal & General among today’s best FTSE 100 shares for investors to buy.

Houses are safe, right?

The FTSE 250 is awash with fat financial sector dividends. But for diversification, I’m picking housebuilder Bellway (LSE: BWY), whose share price looks like this.

That slide has dropped the P/E down as low as six, and pushed the forecast dividend yield up as high as 6.3%.

Investors are clearly expecting the housing market to take a hit from rising interest rates. And house moves will presumably be put on hold too. Or will they?

For the four months to 5 June, Bellway reported strong sales demand. And if we switch to Persimmon‘s first-half update to 30 June, we see rising forward sales and increasing gross margins.

There is a very real risk that a prolonged economic downturn could hurt our housebuilders. But Bellway’s dividend looks attractive to me for long-term income.

An income hero

Merchants Trust (LSE: MRCH) is an investment trust targeting UK equity income. It’s share price has held up over the past year, but it’s been dipping these past couple of months.

The dividend yield is only a relatively modest 5%. But it has a couple of advantages that I think elevate it above some of its peers. Merchants makes the list of Dividend Heroes put together by the Association of Investment Companies, having raised its dividend every year for 40 years in a row.

The trust also aims to provide long-term capital growth, to add to its income potential.

Should its long run of dividend rises miss a beat, I could see the share price being hit. But, to me, Dividend Hero equals income hero.

At that level, the passive income potential the firm offers me means I would consider looking at it for my portfolio.

Resilient business performance

Business performance at Bellway has stayed strong even amid mounting worries about the economy.

In a trading update last month, the company said that it has been seeing buoyant sales demand. The cost of building houses has been increased by inflation driving up the cost of building materials and labour. But Bellway has been able to push its selling prices up too. The company continues to be upbeat about the likelihood of robust sales both this year and next.

However, while the business has been performing strongly, I think the tumbling share price reflects some significant risks for Bellway and the housebuilding sector in general. One of these is the possibility of a slowdown in housing demand. Even if selling prices remain stable, higher interest rates and a reduction in the Help-to-Buy scheme could lead to demand from buyers easing off. On top of that, inflation continues to dog the sector. But Bellway reckons supply chain issues have been easing. The firm expects to continue being able to offset inflationary pressures by pushing up its selling prices.

Bellway dividend growth

As if to underline the strength of its recent business performance, the company increased its interim dividend by 29% to 45p per share. If it matches that increase when it comes to the final dividend, the prospective annual dividend per share would be £1.51. Given the current share price, that means the forward-looking Bellway dividend yield is sitting at 7%. Even if the final dividend remains the same as last year, the current yield is 5.9%. That certainly looks attractive to me.

Bellway has typically taken a conservative approach to dividend coverage. For example, last year its dividend was covered 2.7 times by earnings. That gives the company scope to keep growing its dividend even if earnings are flat. Indeed, profits could fall quite a bit and the Bellway dividend could still be payable from earnings.

So I am cautiously optimistic that, in the short term at least, there may be more growth in the Bellway dividend.

My move

But in the medium term things look less certain. So far, housebuilding as a sector has stayed strong – but can that continue?

The risks facing Bellway strike me as similar to those across its peer group. But rival Persimmon now yields 13.2%. The dividend coverage by earnings is much weaker than at Bellway, at just 1.1 times last year. But even if Persimmon halved its payout, it would still be a bit higher than the Bellway dividend is today. I see similar risks for both firms.

I have been mulling adding Persimmon to my portfolio. But with its yield and coverage levels, I also like Bellway and would think about adding it to my holdings.

Last Thursday, building society Halifax announced average residential property prices were soaring at 18-year highs. The 13% year-on-year rise posted in June was also up substantially from the 10.5% increase recorded in May.

On the same day, Persimmon announced its average private weekly sales rose around 1% in the first half. In addition to this, forward sales were up around £50m year-on-year at £1.87bn, prompting the business to hike its full-year profits forecasts.

Sales keep soaring

This all follows recent strong news coming out of Bellway. A little over three weeks ago it said reservations were up 6% between 1 February and 5 June. It also said forward sales were up more than 27% year-on-year at £2.4bn.

I am wary of the potential impact of raw materials shortages on the homebuilder’s profits. Indeed, Persimmon actually scaled back its full-year build forecasts on the back of building product scarcity.

However, this is a risk I think is factored into Bellway’s rock-bottom share price. At £21.40 per share, the FTSE 250 company trades on a price-to-earnings (P/E) ratio of 5.2 times for the outgoing financial year (to July).

7% dividend yields!

I especially like Bellway today because of its credentials as a dividend stock. City analysts think the company will raise the full-year payout to 136.3p per share this year, from 117.5p in financial 2021. And the dividend is expected to increase to 149.1p in the year starting in August too.

Recent share price weakness has sent its subsequent dividend yields soaring. And today, these sit at 6.4% and 7% for this financial year and next year respectively.

I like the fact that these payout forecasts are well-protected by anticipated earnings too. They’re covered between 2.7 times and 3 times over the next two years, comfortably above the minimum safety level of 2 times.

This gives a wide margin of error in case profits fall short of forecast. Also remember that Bellway’s robust balance sheet could give it added financial strength to pay big dividends if earnings disappoint. The company had net cash of £160m as of June.

The verdict

City analysts think annual earnings will rise 30% in the period to end-July before falling 1% next month. This reflects predictions that rising interest rates will dampen demand for new-build homes.

However, it’s my opinion that this forecast could be upgraded as the months progress. Housing data continues to impress and could continue to do so as Britain’s homes shortage drags on. Bellway is a dividend stock that’s packed with investment potential right now.

A cybersecurity growth stock

Darktrace (LSE: DARK) started its time as a public company extremely strongly. In fact, in a matter of months, the Darktrace share price was able to double, and by October 2021, it had reached over 900p. Things have been far less pretty since October however, with the cybersecurity firm sinking over 60% to 360p. Over the past year, the firm has still delivered a small return of 5%. 

Despite the drop, there hasn’t been too much wrong with the company’s performance. Indeed, in the recent Q3 trading update, there was strong growth across the board. Revenues managed to climb 50% year-on-year to over $100m, and the company added 359 net new customers. Forward guidance was also raised, with revenue growth for the whole year now expected to total over 46%.

There’s a price to pay for this growth, however. Darktrace trades with a price-to-sales ratio of nearly 6, which is far over the average for UK shares. Further, the firm is nowhere near profitability. In the current macroeconomic environment, where inflation erodes the value of future earnings, this is a problem. It explains the reason why the firm has struggled in recent months. 

But I’m still tempted at current levels. For example, Cloudflare, a US peer, trades on a price-to-sales ratio of around 25 and is experiencing similar revenue growth to Darktrace. This indicates that Darktrace may now be overly beaten down. Therefore, I’m tempted to buy. 

A housebuilding share

Housebuilders have also struggled recently, due to an expectation that house prices will decline amid rising inflation and higher interest rates. There’s been some evidence of this recently, with Zoopla noting that the proportion of sellers reducing their asking price has increased. This has seen housebuilding shares suffer collectively, with Bellway (LSE: BWY) falling 36% in the past year. 

But the company’s recent performance has been strong. In fact, in the recent half-year trading update, operating profits were able to increase 11.6% to £330m. This allowed the interim dividend to rise by nearly 30%, giving Bellway a current dividend yield of 6%. It’s also covered three times by underlying earnings, leaving plenty of cash for reinvestment. 

Despite fears of declining demand for housing, as of March 2022, Bellway had a forward order book of 7,491 homes. It also expects operating margins of 18.5%, far higher than in previous years. This shows that the Bellway share price doesn’t reflect the current financial position of the company. 

With a price-to-earnings ratio of under 6, I feel that the shares are now too cheap. Therefore, I’m willing to disregard the risks of a cooling housing market and buy some Bellway stock today.