Are these the best yielding dividend stocks in the UK?

Best UK dividend yielding shares to watch on the FTSE 100

What are some of the best dividend-yielding shares worth watching on the FTSE 100? Here are some of the shares we think are worth a closer look. Note that these stocks are the highest yielding UK shares with a dividend cover ratio of 1 or higher. Past performance is not a guide to future performance. Always do your own research.

British American Tobacco - dividend yield: 8.79%

• Most recent dividend: 58.88p (paid quarterly)
• Latest dividend payment date: 1 November 2024

Despite its best efforts, British American Tobacco is unlikely to appear in any ESG fund (environmental, social, governance) investment portfolio. However, as an income seeker’s stock it’s desirable as the company pays a generous dividend.

Its H1 results reported a 0.8% drop in revenue year-on-year as US cigarette volumes are down 9% and the company fights to maintain market share.

In H2, the company anticipates that the introduction of new and improved New Categories products onto the market and investments made during H1 will begin to pay off and claim they remain on track to deliver its full year guidance.

The company remains on track to deliver its full year guidance, as investments made during H1 begin to pay off, but its target of bringing in £5 billion in revenue from New Categories products in 2025 now seems unlikely.

BATs expect to generate £40 billion in cash flow over the next five years, as customers move to its next generation vapes products. In that time frame however, new legislation banning/ limiting consumer access to these New Category products is likely to be introduced by many governments worldwide. If this happens BATs profit will be negatively impacted.

Aviva – dividend yield: 7.34%

• Most recent dividend: 11.90p
• Latest dividend payment date: 17 October 2024

Insurance provider Aviva have provided good returns for investors over the past 4 years as rationalisation and cost-cutting efforts have proved successful.

2024 is no exception to this trend and Aviva’s H1 earnings reported an operating profit of £875 million, an increase of 14% compared to the same period last year. The Wealth & Retirement and UK & Ireland General Insurance part of the business helped drive these positive results.

With interest rates falling, Aviva’s strong dividend is likely to be a key attraction. The company has recently increased its interim dividend by 7% to 11.90p per share, up 6.7% year-on-year, due to its impressive performance.

Although generous dividend payments are dependant on company performance and can never be guaranteed, Aviva’s dividend yield is forecast to increase to 7.6% in the next 12 months, suggesting that if the company’s strong performance continues, payments should remain stable.

HSBC – dividend yield: 6.79%

• Most recent dividend: 10.00¢
• Latest dividend payment date: 27 September 2024

HSBC Holdings reported strong Q3 results where profit before tax increased by 10% to a total of $8.7 billion. Revenue also increased reaching $17.2 billion, up 6% year-on-year. These earnings were mostly brought in through the parts of the company that charge fees such as Wealth and Investment Banking.

With global interest rates seemingly on their way down and potential conflict between America and China, Georges Elhedery will face some challenges in his first few months as CEO and it’ll be interesting to see the impact this will have on future dividend payments.

The company has recently announced an interim dividend of 10.00¢ per share. This payment has remained stable year-on-year. In the next 12-month period, the company’s dividend yield is expected to increase to 8.0%, suggesting dividend payments should remain stable.

Imperial Brands - dividend yield: 6.62%

• Most recent dividend: 54.26p
• Latest dividend payment date: 31 December 2024

Tobacco companies such as Imperial Brands PLC and British American Tobacco often appear in the top dividend payer lists as they tend to be highly cash generative businesses. While tobacco might seem like a market in decline, Imperial is still managing to grow market share in many of its markets and pricing there remains robust. The company is also busy investing in its next generation vaping products.

The company’s strong H1 results reported the highest organic growth in over 10 years and its net revenue increased by 2.8%. This strong performance is expected to continue into H2 where they’re expected to bring in single, low digit revenue growth at the end of the year.

The company remains on track to meet its full year guidance with operating profit expected to increase by 5-6% year-on-year and growth from Next Generation Products is expected to be between 20-30%, due to a range of new product launches.

Imperial Brands have consistently increased its dividend each year since 2020. Its 3rd interim payment of 54.26p is up from 51.82p year-on-year, so this trend looks set to continue. Future dividend payments will be dependent on the company’s performance so can never be guaranteed.

Land Securities Group - dividend yield: 6.41%

• Most recent dividend: 9.20p
• Latest dividend payment date: 4 October 2024

In FY24 Land Securities Group reported a 4% increase in revenue year-on-year reaching £824 million.

For the most part, the real estate company’s earnings have remained stable throughout the past year, and this is expected to continue throughout FY25.

In October this year, the company paid out an interim dividend of 9.20p per share, up 2% year-on-year. Our analysts anticipate its dividend will continue to grow by a low, single digit percentage this next year.

Taylor Wimpey - dividend yield: 6.07%

• Most recent dividend: 4.80p
• Latest dividend payment date: 15 November 2024

Home construction company Taylor Wimpey reported disappointing H1 results with revenue dropping to £1.5 billion, down 7.3% year-on-year. This was due to the completion of fewer homes and an average decrease in house prices. Cash flow also dropped by 10%.

Higher building costs resulted in a 22.6% drop in operating profits. This was however 12% higher than market expectations.

The company remain on track to meet its target of completing 9,500-10,000 homes by the end of the year and their profit forecast of £416 million is in line with market expectations. Although it’s 10% lower than the year before.

A dividend payment of 4.80p will be paid to shareholders next year. This amount is consistent with what they paid out last year.

High interest rates have caused difficulties within the housing sector as a whole. But with interest rates now dropping, there are signs it may improve as homes become more affordable. With this in mind, it’ll be interesting to see the impact it has upon future dividend payments.

Schroders - dividend yield: 5.99%

• Most recent dividend: 6.50p
• Latest dividend payment date: 26 September 2024

Asset management company Schroders reported a record number of assets under management (AUM), bringing in £773.7 billion during H1, up 6% year-on-year.

This strong performance was mostly due to impressive investment gains and favorable market conditions where client investment and wealth management divisions performed particularly well.

Despite this, reduced performance fees resulted in an 8% decrease in operating profit.

The company’s most recent dividend payment of 6.50p remains consistent year-on-year.

Schroders has recently announced a partnership with savings and retirement business Pheonix Group which would increase their presence in the private markets. Going forward, it’ll be interesting to see the impact this has upon stock performance and future dividend payments.

BP - dividend yield: 5.90%

• Most recent dividend: 8.00¢
• Latest dividend payment date: 20 December 2024

Oil and gas company BP have had mixed Q3 results which has raised questions about its ability to generate cash with lower gas and oil prices. Revenue decreased by 11% to $47.3 billion and operating profit was down 14% to $5.2 billion. Although there were gains in gas and low carbon energy, it wasn’t enough to offset the losses made in the products and customers division.

Going into Q4, the company expect oil and gas production to be down and fewer sales from its consumer-focused sectors, which could negatively impact its overall revenue and profit potential.

The company has announced a plan to buy back $1.75 billion worth of shares in the next quarter and will pay out an interim dividend of 8. 00¢. Although its dividend is up 10% year-on-year, it could face cuts if debt remains high, and market uncertainties continue.

BT Group - dividend yield: 5.60%

• Most recent dividend: 5.69p
• Latest dividend payment date: 11 September 2024

Telecommunications company BT reported stable H1 results where they brought in a revenue of £5.1 billion, down 2% year-on-year due to declining sales in its business segment. Openreach, the division responsible for broadband network, was the only one to see revenue growth.

Lower revenue also contributed to a 3% drop in profit before tax where the company brought in £520 million.

Its recent dividend payment of 5.69p was up from 5.39p year-on-year.

The company’s full year guidance remains unchanged, with a predicted revenue growth of 0-1% and a cash profit of around £8.2 billion.

Going forward, BT aims to modernise its operations and build new infrastructure which should result in lower costs and increased growth. Challenges with its Business division and the need to offset declines in older services through generating growth will also need to be handled.

British Land - dividend yield: 5.46%

• Most recent dividend: 10.64p
• Latest dividend payment date: 26 July 2024

Real estate company British Land is expected to report positive H1 results with underlying profit expected to be between £142-144 million, consistent with last year's figures. Its rental value is anticipated to increase by 2.3% and property valuations are expected to remain stable.

Increased rent and stable property prices provide a positive landscape for British Land to grow. The company’s London campuses, which combine retail, offices and leisure have high occupancy with big clients such as Meta. Going forward the company plans to focus on expanding its science and tech sector which it anticipates will become 50% of its property portfolio by 2023.

British Lands final dividend for the year remains consistent with the year before.

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Dividend stock investing strategy: what you need to know

Dividends are often viewed as a crucial element of a strategy, providing a regular stream of income, or used to buy more shares in a company (a process known as reinvesting). The difference in an investment’s return based on capital appreciation only can be drastically different from that including the returns from dividends.

However, dividends shouldn’t be the sole reason for investing in a company, but rather a bonus element to the key requirement of selecting a company with strong fundamentals and or a bullish price trend. It’s also important not to pick companies based on dividend yield alone, since dividends can be reduced or increased.

Usually, a well-managed company will look to pay dividends as a way of demonstrating its financial strength and attractiveness for investors, but there’s a risk that companies may pay out dividends from cash reserves rather than from profits.

A very high dividend yield, usually above 7%, could be a red flag for investors. Usually, dividend yields increase sharply when a share price drops, since the dividend yield is calculated as: (dividend per share divided by share price) x 100. Such drops prompt a sudden increase in the yield without increasing the amount paid out in dividends.

Companies that see sharp increases in yields are often tempted to cut the dividend as a result, since the yield can still be kept to an attractive level (2% to 3%), but money can be saved in terms of reduced dividend pay-outs.

Choosing dividend-paying companies for a potential investment thus requires an extra level of work beyond looking at the financial statements or examining the price chart. It’ll mean investors must look at the level of dividends, their growth (or otherwise) and how these are funded. In particular, the dividend coverage ratio is key.

This is calculated by dividing net profits by the dividend to produce a ratio. Above 1 signals that the dividend is at least covered fully by profits and that existing cash reserves aren’t being used to pay dividends. Below 1 is also a potential red flag, since it shows profits don’t cover the pay-out and thus cash reserves are employed to maintain the dividend. This runs the risk of a dividend cut or cancellation of the entire payout.

How to identify the UK’s best dividend stocks

There are a few steps you can follow to identify the UK’s best dividend stocks:

1. Use a market screener
2. Analyse past dividend payments
3. Learn more about the company

Use a market screener

You can use online resources such as a market screener to look for companies with a proven track record of delivering dividends. A screener also makes it easy to compare high-yield dividend stocks against each other. This way, you can choose the stocks that best suit your risk profile.

Analyse past dividend payments

By analysing past dividend payments, you can get a sense of how the company prioritises them. Some companies may be so committed that they dip into cash reserves to keep investors satisfied, while others do the opposite and use dividend funds to pay for day-to-day activities.

If past dividend payments were very high and earnings were low, it could be a red flag. That’s because a company that spends too much on dividends maybe harming future growth. You can use ratios such as the dividend coverage ratio to determine the health of a company’s dividends.

Learn more about the company

Dividends are affected by several factors, so it’s important to learn as much about the company as possible. This includes share price activity, fundamentals and all corporate actions. These factors will help you establish a company’s overall health, as well as the prospects for dividend payments.

Read more about fundamental analysis

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