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During volatile times, investors naturally gravitate towards safer options and reducing exposure to high-risk growth stocks. Mature dividend shares are one avenue where potential shelter can be found during uncertain times. Of course, this doesn’t mean simply buying any stock that pays out income. But in being selective in the sector and type of company, here are a couple I believe are worth considering.
The light bulb moment
The first company is National Grid (LSE:NG). The electricity and gas utility provider has a dividend yield of 5.86%. Over the past year, the stock is up 4%.
The provision of essential utilities to businesses and personal consumers means that demand should remain strong regardless of what happens with either the global or domestic economy. The fallout from the tariff announcement shouldn’t impact operations. It’s true that the business does have some US assets (which are being sold), but these are not export-driven, so the impact of tariffs won’t matter. In fact, it has minimal exposure to physical goods that are subject to trade barriers. I think this is a positive right now.
The mature firm has been paying out continuous dividends for over two decades. Even though the exact dividend per share does change over time, the fact that management hasn’t cut it completely, even during events like the global financial crisis and the Covid-19 pandemic, boosts confidence.
One risk is the £60bn, five-year capital investment plan that’s currently underway. Even though this could be good years down the line, it can act to drain cash flow and put a strain on resources right now and in the next couple of years.
Strong finances driving confidence
A second idea is Legal & General (LSE:LGEN). The financial services giant boasts a 9.82% dividend yield, although the share price has fallen by 11% over the last year.
The 2024 annual results that came out last month showed continued strong performance. Core operating profit rose 6% versus last year, hitting £1.62bn. As part of the profit bump, it increased the dividend payment by 5%, with a bold intention to return more than £5bn (or around 40% of the current market cap) within three years to shareholders. Some of this will be via share buybacks, but some will come through higher dividends.
It’s true that the company has limited exposure to global supply chains or US goods trade. Tariffs are irrelevant to its core business. However, it’s involved in investment management. So with stock and bond markets having a tough time, some investors might pull their money out and sit in cash. This would decrease the assets under management and, therefore, the fees and commissions made on that money.
Although that remains a risk going forward, I believe it’s a solid company with an elevated dividend yield. I think both income shares are worth considering right now over some volatile growth stocks.
