Are these the best FTSE 100 dividend stocks to watch in January 2025?

The FTSE 100 may be continuing to underperform international indices, but the index nevertheless has risen by an impressive 8% year to date — and this excludes dividends. Having smashed through the symbolic 8,000— point barrier, the index currently rests on 8,301.62 points.

FTSE 100 macroeconomics

After meeting the Bank of England’s (BOE) CPI inflation target rate of 2.0% on 2 August, interest rates have gradually been reduced by 0.50 basis points and currently stand at 4.75%.

Recent figures released by the ONS showed inflation had risen from 1.7% in September to 3.2% in October due to a rise in energy bills. Although this was largely expected, with pressure to keep inflation low, interest rates are expected to be held at 4.75 basis points when The BOE is next scheduled to meet on 19 December.

Throughout the next year, inflationary pressures are expected to lessen. Whilst the UK economy has now entered into a phase where interest rate cuts are likely, following the recent budget, where an increase in government spending was announced, further cuts are expected to be more gradual.

Then there’s the AI-fuelled surge of the US tech stocks to consider. This may be a sustainable rise given the tech advances at hand or it may be a bubble that eventually bursts. If the latter, this excess capital may find itself within FTSE 100 dividend stocks until the storm blows over.

This all makes investing in FTSE 100 dividend stocks complex. In particular, the highest dividend yields can be hostage to economic policy — where individual investment cases and changing financial landscapes can create value traps or payout irregularities.

Open an account and start trading some of the top UK dividend stocks in 2025.

Best FTSE 100 dividend shares to watch

These shares are the highest yielding on the index with a dividend cover ratio of 1 or higher as of 19 November 2024. They may not be the best investments and the dividends and capital itself are not guaranteed.

1. M&G

2. Phoenix

3. B&M

4. Legal & General

5. British American Tobacco

M&G (dividend yield: 13%)

Savings and investment company M&G reported strong H1 results with assets under administration reaching £346 billion, up from £333 billion the year before. This was driven by positive market movements. Underlying operating profit was down 4% to £375 million, but still exceeded expectations.

Going forward, the company aim to grow its Asset Management and Wealth side of the business, so its profits account for 50% of the overall business, whilst beginning to phase out its annuity portfolio and legacy products.

In September the company announced an interim dividend of 6.60p which was paid out to shareholders in October. MGN has a cover ratio of 3.8, which indicates that if its strong performance continues, the company is well positioned to continue with dividend payments.

Our analysts have given the stock a buy rating with an average price target of 226p in the next 12—month period, up 12.58% from its current value.

Phoenix (dividend yield: 10.2%)

Savings and retirement company Phoenix reported strong H1 results for the 6 months ending 30 June 2024. Operating profits increased by 15% year— on— year to £360 million, driven by growth in Savings, Pensions and Retirement solutions. Cash generation also increased, reaching £950 million, and the company is expected to meet the upper end of its £1.4— 1.5 billion revenue target for 2024.

On 31 October Phoenix Group paid a dividend of 26.65p, up from 26.00p the year before. With a cover ratio of 4.6 the company appears well positioned to offer strong dividend payments in the near future.

Our analysts have given the stock a hold rating with an average price target of 546p in the next 12— month period, up 5.00% from its current value.

B&M (dividend yield: 8.7%)

Retail store B&M reported stable H1 results with revenue increasing by 4% to £2.64 billion, with revenues in the UK growing by 3.7%. Despite this, higher costs caused operating profits to fall by 1.8% to £258 million.

The company remains confident its full— year EBITDA will be between £620 and £660 million and claims to be well prepared for the Christmas period.

For the year ending 30 March 2024 the company paid a final dividend of 34.70p, up from 34.60p the year before. With a cover ratio of 4.7 the company seems well positioned to continue paying a strong dividend.

Legal & General (dividend yield: 9.7%)

Financial services provider Legal & General announced impressive H1 figures with a revenue increase of 39% to £19.8 billion year— on— year and operating profit remained broadly flat reaching £849 million. Strong performance was mostly driven by the Retirement and Retail parts of the business.

Although investor sentiment remains cautious due to high interest rates, the business is in a good position to grow, with plans to expand into markets beyond the UK including Canada, the US and the Netherlands.

In September the company paid out a dividend of 6.00p, up from 5.71p the year before. With a cover ratio of 1.9 the company is likely to continue paying a strong dividend.

Our analysts have given the stock a strong buy rating with an average price target of 269p, up 14.28% from its current price.

British American Tobacco (Dividend yield: 7.9%)

British American Tobacco saw revenue drop 0.8% during H1 as cigarette volumes in the US, their main market, are down 9% and the company struggles to maintain their market share.

Despite this small single figure revenue drop, a successful H2 means that the company is on track to meet its full year guidance.

However, the FTSE 100 tobacco company will have to pivot fast, having written off £27.3 billion of its US brand portfolio after acknowledging they have ‘no long-term future.’ Compounding the weak combustibles growth, the UK recently announced a ban on disposable vapes which could hit BATS’ long-term ambitions in non-combustible categories — and is also imposing a specific vaping tax as well. This could hit margins if similar legislation is adopted more broadly.

BATS share price has performed well throughout 2024 and we may see further gains from here as their generous dividend of 58.88p per share remains a key attraction.

Our analysts have given the stock a hold rating, with an average price target of 2991p, up 0.29% from its current price.

How to invest or trade in FTSE 100 stocks with us

1. Learn more about FTSE 100 shares
2. Open an account with us or practise on a demo
3. Select your opportunity
4. Choose your position size and manage your risk
5. Place your deal and monitor your trade

You can either invest in shares directly or trade using spread betting or CFDs to benefit from leverage.

Keep in mind, leverage means you can gain or lose money faster than expected. Because your position size is far greater than your deposit, you could lose more money than you put in. Be aware also that past performance is not an indicator of future returns.

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