5 of the safest dividend shares on the London Stock Exchange (2024)

Edward Sheldon has been searching the UK stock market for the safest dividend shares. Here, he highlights five companies he identified.

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The London Stock Exchange is home to hundreds of dividend shares. But some of these are arguably much safer in nature than others.

Recently, I screened the UK market to find what I consider to be the safest dividend shares out there. Below, I’ll explain what I did, and which stocks appeared on my screen.

Defining ‘safe’

Let me start by saying that it’s hard to define the term ‘safe’ when it comes to shares. When investing in the stock market, one’s capital is always at risk.

But the way I see it, with dividend shares, the safest ones are those that:

• are reliable dividend payers that are unlikely to cut, cancel, or suspend their payouts going forward; and
• are less volatile than the broader market in terms of their share prices.

Put simply, I see safe dividend shares as those that investors can rely on for income that are unlikely to see their share prices crash.

Screening the market

With that in mind, I set up a screen to look for UK stocks that meet the following criteria:

• a forward-looking dividend yield of over 2% but less than 7% (yields above 7% can be an indication that the market doesn’t believe the payout is sustainable in the long run);
• a forward-looking dividend coverage ratio of at least 1.5 (dividend coverage is a measure of dividend safety and is calculated by dividing earnings per share by dividends per share);
• a track record of at least 10 consecutive annual dividend payments;
• no dividend cuts in the last five years;
• a beta of less than 0.8 (beta is a measure of share price volatility relative to the market. A beta of less than one indicates that the stock fluctuates less than the overall market); and
• a market cap of at least £3bn (so the focus is on larger, well-established companies).

I also excluded stocks in ‘cyclical’ sectors such as financials, energy, industrials, materials, and consumer cyclicals. I did this because profits and cash flows in these industries tend to fluctuate a lot. This adds uncertainty from a dividend-investing perspective.

Five safer dividend shares

Now, there were not many names that met all of the criteria above.

However, five that did were:

• AstraZeneca, the UK’s largest pharmaceutical company. Its yield is about 2.1%.
• Diageo, a leading alcoholic beverages company that has registered over 20 consecutive dividend increases. Its yield is about 2.3%.
• Reckitt, a consumer staples company that is focused on health, hygiene, and nutrition. Its yield is about 3%.
• Smith & Nephew, a medical technology company that has paid a dividend every year since 1937. Its yield is about 2.5%.
• Sage, a provider of cloud-based accounting and payroll solutions. Its yield is currently about 2.5%

So, I see these companies as five of the safest dividend shares on the London Stock Exchange at present.

Now, it’s worth noting that none of these stocks have particularly high yields. The highest is Reckitt at 3%.

But what I find interesting is that all of these shares have been great long-term investments. Over the last decade, all five have comfortably outperformed the FTSE 100 on a share price basis. Some have totally smashed the index!

This shows the benefit of seeking out safer dividend shares – they can potentially provide income and long-term capital gains.