The 10 best-yielding dividend stocks in the UK

Stocks that pay dividends can provide a great opportunity to increase the income diversification of an investment portfolio. If you are looking for dividend-yielding stocks to add to your trading or investment portfolio, this article covers the best-yielding dividend stocks available in 2020 from some of the UK’s largest companies. 

Read on to find out which stocks offer the highest dividend rates in the FTSE 100 as of 15th January 2020 (excluding special dividends). 

1. Evraz

Evraz (EVR) is a vertically integrated steel manufacturing and mining company. The company has headquarters in London and the majority owner is Roman Abramovich, a billionaire who is famous for owning the premier league football club Chelsea F.C.

Key Fundamentals
Avg. Volume: 458,767
Market Cap: £5.73 billion
PE Ratio: 4.66
Dividend Yield: 14.69%
Price: 395.10p

201975.00¢
2018118.00¢
201760.00¢
20160
20150

Evraz is the highest yielding dividend stock in the FTSE 100. The stock has an annual yield of 14.69% and pays dividends twice a year. However, Evraz does not have a long history of dividend payments and has only offered dividends since 2017. Additionally, the company has total liabilities of around 7.7 billion, although this has been decreasing consistently year on year.

2. Centrica

Centrica (CAN) is an energy supplier of gas and electricity to businesses and customers in the U.K., Ireland and North America. Its subsidiary company ‘British Gas’ is the largest supplier of energy in the country and was formed in 1997 following a demerger of the British Gas Corporation.

Key Fundamentals
Avg. Volume: 3,310,808
Market Cap: £5.22 billion
PE Ratio: N/A
Dividend Yield: 11.55%
Price: 90.24p

20195.00p
201812.00p
201712.00p
201612.00p
201512.00p

Centrica announced that the 12/2019 dividend is forecasted to be cut to 5p, after years of consistently high dividend payments. Sitting at 95th on the FTSE 100, Centrica is close to being ejected from its position. However, Centrica does offer a generous dividend yield of 11.55%, and has paid consistent dividends since 1999. 

3. Imperial Brands

Imperial Brands (IMB) is the fourth-largest tobacco company in the world when measured by market share. Founded in 1901, Imperial Brands owns popular brands such as Golden Virginia, RizLa and JPS.

Key Fundamentals
Avg. Volume: 294,205
Market Cap: £18.82 billion
PE Ratio: 18.82
Dividend Yield: 10.54%
Price: 1,989.80p

2019206.57p
2018187.79p
2017170.72p
2016155.20p
2015141.00p

Positioned 31st on the FTSE 100, Imperial Brands offer an attractive dividend of 10.54%. IMB has managed to increase its dividend year on year since 2012, so there are good prospects for future dividend growth if it manages to maintain these increases. 

4. Persimmon

Founded in 1972 and headquartered in York, England, the firm Persimmon (PSN) was named after a racing horse who was owned by the Prince of Wales and famously won the St. Leger Stakes in 1896. The company specialises in house building and covers a wide region from Scotland to the south of England.

Key Fundamentals
Avg. Volume: 765,001
Market Cap: £8.92 billion
PE Ratio: 10.20
Dividend Yield: 8.68%
Price: 2,829.00p

2019206.57p
2018187.79p
2017170.72p
2016155.20p
2015141.00p

Persimmon shows no sign of slowing down in growth as its profit and revenue have increased consistently over the last 5 years. Paired with a high-yielding dividend rate of 8.68%, Persimmon could offer income investors a good opportunity if the U.K. housing market demand continues to rise.

5. BT Group

BT group or British Telecom is a global telecommunications provider that operates in over 180 countries and is the largest provider of broadband in the UK. Sitting at position 30 in the FTSE 100, BT is a long-standing member of the leading index and the stock shows no signs of slowing dividends yields or growth rates. 

Key Fundamentals
Avg. Volume: 3,557,918
Market Cap: £18.34 billion
PE Ratio: 8.47
Dividend Yield: 8.01%
Price: 184.04p

2019110.00p
2018110.00p
2017110.00p
2016135.00p
2015110.00p

Known to be an income stock that pays a high-yielding dividend, BT currently pays 8% and has sustained the same rate dividend for the last 4 years. The company pays dividends twice a year and has been paying since 1998.

6. Aviva

Aviva plc (AV) is a general insurance company that spans over 16 countries and serves around 33 million customers. Aviva is the largest general insurer in the UK when measured by the value of business conducted, outperforming close competitors two-fold. 

Key Fundamentals
Avg. Volume: 2,315,608
Market Cap: £16.42 billion
PE Ratio: 7.01
Dividend Yield: 8.01%
Price: 408.40p

201931.00p
201830.00p
201727.40p
201623.30p
201520.80p

Aviva offers a strong dividend rate, which is amongst the top yielding dividends in the FTSE 100. The dividend yield has increased steadily since 2013, starting from around 18.1p and increasing to a huge 31p in 2019. Income investors are enticed by the high yielding dividend rate and strong company fundamentals. Positioned at 34th in the FTSE 100, Aviva is a popular defensive stock for investors.

7. Standard Life Aberdeen

Standard Life Aberdeen (SLA) is an investment company that manages global assets including equities, real estate and private markets. SLA is the largest active asset manager in the U.K. and is headquartered in Edinburgh, Scotland. Standard Life Aberdeen was formed from the merger of Standard Life and Aberdeen Asset Management back in 2017.

Key Fundamentals
Avg. Volume: 6,562,052
Market Cap: £7.3 billion
PE Ratio: 6.50
Dividend Yield: 6.93%
Price: 309.60p

201921.60p
201821.60p
201721.30p
201619.82p
201518.36p

Standard Life Aberdeen offers an attractive dividend yield of around 6.93% and an increasing company net worth. However, SLA is still a risky investment and is currently operating at a loss. Besides this, the current dividend rate has risen consistently since 2007.

8. HSBC Holdings

HSBC is a British investment bank that has operations on a global scale. It is the largest bank in Europe, the seventh largest in the world and was founded over 150 years ago in 1865. Serving around 38 million customers worldwide from 3,900 offices in 65 countries, HSBC was crowned the 21st largest public company in the world by Forbes in 2019.

Key Fundamentals
Avg. Volume: 9,734,943
Market Cap: £120 billion
PE Ratio: 11.91
Dividend Yield: 6.63%
Price: 596.10p

201939.96p
201839.04p
201737.96p
201640.11p
201534.15p

Offering a respectable dividend rate of 6.63%, HSBC always seems to be increasing their dividend yield year-on-year. Additionally, HSBC is the second most liquid stock in this list and the second largest company in the FTSE 100 by market cap.

9. Royal Dutch Shell B

Royal Dutch Shell B is the trading name for the oil and gas company Shell. There are ‘A’ and ‘B’ class shares available. They are essentially the same, but the ‘A’ class shares are tied to the Dutch tax system and come with a 15% withholding tax for non-EU residents. Whereas, the ‘B’ class shares are free from withholding tax for UK residents, which could simplify the dividend yield in the future considering the UK’s departure from the EU. 

Key Fundamentals
Avg. Volume: 3,951,640
Market Cap: £178 billion
PE Ratio: 11.28
Dividend Yield: 6.35%
Price: 2,253.50p

2019146.60p
2018144.39p
2017142.33p
2016144.05p
2015125.52p

Shell is the largest company in the FTSE 100 when measured by market capitalisation and does not seem to be contested for its position. With a healthy dividend rate of around 6.35%, Shell has always offered a high-yielding dividend for stocks owners or traders. 

10. BP

Formerly The British Petroleum Company, BP is a multinational oil and gas company that offers a high dividend yield, which can appeal to income investors. Founded in 1909, BP is the sixth-largest energy company in the world by market capitalisation. 

Key Fundamentals
Avg. Volume: 22,678,947
Market Cap: £101 billion
PE Ratio: 27.64
Dividend Yield: 6.35%
Price: 496.65p

201931.94p
201831.24p
201729.84p
201630.56p
201526.77p

As the third largest-company in the FTSE index, BP is offering a competitive dividend rate of 6.35% in comparison to other similarly positioned companies. Additionally, with a PE ratio of 27.64, many investors expect company growth to climb throughout 2020. 

However, it is worth noting that BP CEO Bob Dudley is due to retire and is to be replaced by Bernard Looney in February 2020. Looney has ambitions to expand the company’s climate targets, which will result in some of the biggest changes the company has experienced in its 111-year history.

How to pick high-yielding dividend stocks

Investing in stocks that pay large dividends and deliver consistent growth is a popular investment strategy. Investing in these dividend or income stocks is more complicated than simply choosing a stock that has a high yielding dividend rate. Income stocks are vulnerable to dividend cuts, missed payments, dividend elimination and share price crashes.

Profitability

An income stock should be profitable. Unlike growth stocks, which are more of a speculative investment, income stocks should show year-on-year consistent profitability. The consistency of increasing profit helps to ensure that there will not be any dividend cuts or payout problems in the future. This follows the general logic that a financially stable company will be more likely to payout a regular dividend.

Payout ratios

A payout ratio represents the relationship between a company’s income and its dividends. As companies usually pay dividends out of their profits, a company with dwindling profits could make cuts to their dividend. Therefore, a company’s dividend payout ratio should correlate with its net income. By comparing these two metrics, you can start to establish if the current dividend rate is sustainable.

Companies with a high payout ratio may be committed to paying out such a dividend, with fears that investors would look elsewhere if they cut the rate. Moreover, some companies or industries generally pay a higher dividend, as growth opportunities are not as evident.

Dividend cover

Dividend cover is a helpful ratio in determining how sustainable a company’s dividend is in the long-term, similar, but inverse to payout ratio. A company’s dividend cover indicates its capacity to pay dividends out of profit earned. It is displayed as a ratio, which shows how many times the dividend is covered by profits available.

See below for the formula.  

Dividend Cover = EPS (Earnings per share) / DPS (Dividends per share)

A ratio above 1.0 is considered healthy and anything less than 1.0 is possibly not sustainable and suggests that the dividend is at risk of being cut. Many companies aim for a dividend cover of around 2.0 to ensure they efficiently use their capital in a sustainable manner. 

Dividend volatility

When looking at a company’s previous financial and dividend information you can make an informed decision based on the stock’s dividend volatility. If a stock has a history of paying high dividends on time and consistently increasing the dividend yield, it can be classified as a stable income stock. Although slow and steady growth may not be exciting, combining the reinvestment of dividends, increasing dividend yields and compound interest can provide great returns.

This, therefore, stresses the importance of choosing stocks that are unlikely to cut their dividend rate whilst maintaining consistent growth. When a company struggles financially and cuts its dividend, you could lose your dividend income, which is based on the current value of your initial investment. A struggling company with a declining share price has double the impact, as your dividend payout will suffer from the loss of your initial investment. 

Dividend growth

Companies can increase the dividend of a stock even if the company is struggling financially. Based on the volatility of the dividend, it can be worth analysing whether or not the EPS (earnings per share) of the business is growing. If the company has a relatively healthy dividend but its EPS is falling, the dividend will likely experience some stress.

Trading dividend stocks

You can trade stocks that offer dividends via a spread betting or CFD trading account. Although you will not own the underlying asset, any dividend accrued by the stock is paid into your trading account balance.

When using leveraged trading methods traders can play both sides of the market by ‘buying’ the asset and going long, or ‘selling’ the asset by going short. When ‘buying’ and going long, traders are entitled to the assets dividend payment and will receive it in their account as normal. However, for traders who wish to ‘sell’ or short their stock, they are charged the dividend’s value accordingly.

Summary

Investing and trading stocks that have high dividend rates can contribute to a balanced investment portfolio. The more diverse the array of assets you hold, the more you spread the risk and potential loss of your investments.

When investing in stocks with a high dividend rate it may be very useful to view the history of the stock’s dividend and analyse other company fundamentals that could influence the business’ ability to pay dividends. Beyond analysing the dividend history and company fundamentals, it can also be useful to analyse how other companies in that competitive space are performing.

In the end, you cannot guarantee a company is going to pay a dividend, or earn enough to match or exceed their last dividend payments. However, you can make a decision based on a number of valuable metrics such as the variables covered, to make the most informed decision possible. 

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