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Date : December 1, 2022
Retirement

2 top dividend shares to snap up in October

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Dividend shares have been getting a lot of attention from investors lately and it’s easy to see why. In today’s choppy market, where capital gains are hard to come by, dividends are the easiest way to make money from stocks.

Here, I’m going to highlight two UK dividend shares I like the look of right now. Both of these stocks currently have yields of over 3%, and I think they could play a valuable role in my portfolio when I next hit the buy button.

One of the safest dividend shares in the FTSE 100?

Let’s start with defence and security company BAE Systems (LSE: BA), which is a member of the FTSE 100 index.

There are several reasons I’m bullish on BAE Systems. Firstly, the backdrop for the company is quite supportive given the high level of geopolitical uncertainty globally (Russia/Ukraine, China/Taiwan, etc). This year, the group expects to achieve sales growth of between 2-4% and earnings growth of 4-6%.

Secondly, brokers are lifting their earnings forecasts and share price targets. For example, analysts at Jefferies just raised their target price to 1,000p from 960p. This kind of activity should support the share price.

Third, the company is buying back its own shares. Recently, BAE announced a three-year share buyback programme for up to £1.5bn. This should boost earnings over time.

As for the dividend, analysts currently expect the FTSE 100 company to pay out 26.3p for 2022. At the current share price, that equates to a yield of a healthy 3.3%.

The big risk for the firm, to my mind, is that the Russia/Ukraine crisis comes to a sudden end. It’s something we all long for. But in this scenario, I’d expect defence stocks to experience some temporary share price weakness.

Overall, however, I think BAE Systems is a savvy pick for my portfolio right now. It’s worth noting that the stock’s forward-looking P/E ratio is about 15, so it’s not particularly expensive.

An under-the-radar dividend stock

The second dividend play I want to discuss is technology specialist Computacenter (LSE: CCC). This stock – which is part of the FTSE 250 – is a little more under the radar.

There’s a lot to like about this company, in my view. For starters, it looks set to benefit from one of the most dominant trends on the planet today – digital transformation. So there’s long-term growth potential here.

It’s also very profitable. Last year, Computacenter’s return on capital employed (ROCE) was 27%. Companies that generate high ROCE tend to be good investments over the long term because they have a lot of money to reinvest for growth.

Meanwhile, the dividend yield is attractive (currently around 3.5%) and dividends are well covered by earnings.

Finally, the valuation is very reasonable. Currently, the stock trades at just 12 times this year’s earnings forecast.

Of course, Computacenter is not perfect. Recently, the company has experienced some supply chain issues. These could persist in the near term.

All things considered however, I think the long-term risk/reward proposition here is very attractive.

The post 2 top dividend shares to snap up in October appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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