3 top dividend stocks for passive investing

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While I like aiming for growth in my investments, I equally enjoy trying to derive an income stream from buying dividend stocks. Having researched a massive number of companies, I’ve shortlisted three that I think could be good additions to my portfolio. Let’s take a closer look.

A hot dividend yield

Shares of Imperial Brands (LSE:IMB) have performed comparatively well over the past year. In that time they’re up 17%, while they’ve increased 11% in the last three months. At the time of writing, they’re trading at 1,860.5p.

In 2021, the company – a tobacco firm – paid a dividend of 139.08p per share, equivalent to a dividend yield of 7.48%. I’m always aware, however, that dividend policies may be subject to change at any time. 

For the year ended September, between 2020 and 2021, revenue was broadly flat. On the other hand, pre-tax profit increased by over 50% from £2.1bn to £3.2bn. 

Furthermore, for the six months to 31 March, sales were up 0.3%, year-on-year, to £3.5bn, but operating profit fell by 26%. This was largely due to the company leaving Russia after the beginning of the war in Ukraine. It’s unclear how much of an impact this will have, and over what period of time.

Banking on rising interest rates

Next, NatWest (LSE:NWG) paid a dividend of 10.5p per share for 2021. At the current share price of 221p, this equates to a dividend yield of 4.76%.

The UK banking giant has recently been benefiting from increasing interest rates in the UK. These are currently set at 1.25%, but they could rise to 1.75% in the coming months.

Higher interest rates generally mean that banks can charge more for their products, like loans and mortgages.

NatWest’s financial results already show that higher rates have had a positive impact on the balance sheet. Between 2020 and 2021, the company swung from a £481m pre-tax loss to a £4bn pre-tax profit.

There’s the possibility that higher rates end up deterring customers who can’t afford to take on any more debt. But rising rates have already prompted investment bank Jefferies to upgrade the shares to ‘buy’ and it increased the price target from 246p to 359p. 

A great all-round package

Finally, DS Smith (LSE:SMDS) paid shareholders a dividend of 15p per share in 2021, equivalent to a dividend yield of 5.2% based on the current share price of 286p. This dividend policy has been quite consistent over the past five years.

For the year ended April, reported revenue increased by 21% to over £7bn. The company – a packaging solutions and paper business – reduced net debt from £1.79bn to £1.48bn over the same time period. Additionally, cash flow grew from £486m to £519m. 

There are threats to this company, not least the prospect of the higher price of raw materials used in paper and packaging. The wider economic climate of inflation could also weigh on future balance sheets. 

However, the firm’s guidance remains unchanged for now. 

Overall, these three businesses have solid dividends and strong financial results. I’ll be adding all three to my portfolio soon.