Dividend stocks: how I’m aiming for double-digit returns in 2023!

Dividend stocks are well represented in my portfolio.

My portfolio has performed well over the past year considering the environment. But going forward, I’d like to see double-digit growth in the next 12 months.

For me, dividend stocks are central to this. If I choose wisely, I can be sure that I will get at least a dividend. If I am prudent, I can expect to see some upward movement in the share price.

So, let’s take a closer look at my picks.

A safe yield

In 2021, Lloyds (LSE:LLOY) has a dividend coverage ratio of 3.8. This is very important, and means that the bank can pay almost four times the already mentioned dividend to its shareholders.

In 2023, Lloyds will benefit from higher interest rates. The bank said that its net interest margin (NIM) – essentially the difference between lending and savings rates – is expected to reach 2.9% by the end of 2022, and could grow again in 2023.

Lloyds even earns more interest on deposits with the Bank of England. Analysts suggest that each increase of 25 basis points is worth £200m in interest revenue. So far, this could represent a tailwind of £2.5bn in income coming from the central bank.

I also expect to see stock prices rise in the coming year as the economic environment improves. But in the near term, one risk is that disruption costs could rise due to the possibility of a recession.

I have owned Lloyds Shares for some time, but recently bought more. It currently offers a 4.4% yield, and that’s a good one.

But I also think we could see at least a 5% increase in share price next year. One reason for this is that the discounted cash flow model with a 10-year exit shows the stock is undervalued.

It is calculated by forecasting cash flows over 10 years, and subtracting the discount rate – reflecting the time value of money. The calculation shows that it is undervalued up to 60%.

Rising resource stocks

Chemical and Mining Society of Chile (NYSE:SQM) has a sizable 8% dividend yield and a coverage of around 2.2 — anything above two is considered healthy.

The Chile-based specialty chemicals company focuses on the mining and production of iodine, lithium and other industrial chemicals.

The stock has soared over the past 18 months as the price of lithium has risen 10-fold. But there’s no reason to assume it won’t continue.

While the global economy is slowing down, demand for battery-dependent products, especially electric vehicles (EVs), remains strong. This is because the demand for lithium is linked to one of the most important economic trends of our generation.

I expect increased competition for resources over the next decade that will translate into higher prices for fuel and metals.

I don’t often buy US dollar denominated stocks because of currency fluctuations. That’s because the appreciating pound can wipe out some of my earnings, which is a clear risk.

But I believe in this miner. I see lithium as a strong investment theme and I want an 8% return. That’s why I recently added it to my portfolio.

With an 8% yield and low share price growth, I was able to achieve my second goal.