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 some of the highest dividend rates in the FTSE 100 as of August 2020 (excluding special dividends).
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.
Avg. Volume: 294,205
Market Cap: £11.86 billion
PE Ratio: 13.89
Dividend Yield: 14.68%
Imperial Brands currently offers an attractive dividend of 14.68%. 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.
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.
Avg. Volume: 458,767
Market Cap: £4.73 billion
PE Ratio: 9.10
Dividend Yield: 13.99%
Evraz stock has an annual yield of 13.99% 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.
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.
Avg. Volume: 22,678,947
Market Cap: £55.39 billion
PE Ratio: 14.10
Dividend Yield: 9.99%
As the third largest-company in the FTSE index, BP is offering a competitive dividend rate of 9.99% in comparison to other similarly positioned companies. Additionally, with a high P/E ratio, many investors expect company growth to climb throughout 2020. However, it is worth noting that BP's former CEO, Bob Dudley, retired and was 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.
M&G PLC is an investment management company that is headquartered in London. It deals primarily with equities, portfolio management, fixed income and real estate, both in the UK and overseas. M&G has provided services to customers for over 80 years and is one of the largest fund management companies in the country.
Avg. Volume: 5,598,063
Market Cap: £4.37 billion
PE Ratio: 4.00
Dividend Yield: 9.96%
M&G is fairly new to the FTSE 100, only registering on the London Stock Exchange in 2019 after a de-merger from its parent company, Prudential. The company started paying dividends in 2020.
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.
Avg. Volume: 3,951,640
Market Cap: £85.79 billion
PE Ratio: 10.29
Dividend Yield: 8.82%
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 8.82%, Shell has always offered a high-yielding dividend for stocks owners or traders.
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 UK and is headquartered in Edinburgh, Scotland. Standard Life Aberdeen was formed from the merger of Standard Life and Aberdeen Asset Management back in 2017.
Avg. Volume: 6,562,052
Market Cap: £5.44 billion
PE Ratio: 13.22
Dividend Yield: 8.79%
Standard Life Aberdeen offers an attractive dividend yield of around 8.79% 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.
British American Tobacco is a multinational company that manufactures and sells tobacco products in more countries around the world than any of its competitors. Founded in 1902, it is now the largest cigarette maker in the world based on net sales. Due to its international presence, it is listed on four stock exchanges.
Avg. Volume: 5,964,921
Market Cap: £57.95 billion
PE Ratio: 9.12
Dividend Yield: 8.32%
British American Tobacco only started paying out dividends in 2018 but has risen substantially to a healthy and competitive figure of 8.32%. With its development of electronic cigarettes, as buyers move away from the traditional kind, British American Tobacco is certainly a company to watch.
Legal & General is a financial services company that deals with pensions, lifetime mortgages, annuities and investments for more than 10 million clients worldwide. It has headquarters in the City of London.
Avg. Volume: 10,357,239
Market Cap: £13.35 billion
PE Ratio: 10.97
Dividend Yield: 7.89%
Legal & General have been paying consistent dividends for years to investors, and it shows promising growth and revenue for the future. Although most of its operations are in the UK, the company also works on an international level.
Vodafone is a telecommunications company that operates primarily in the UK, as well as worldwide. It is the fourth-largest mobile operator group in terms of mobile customers, with almost half a billion in 2020. Vodafone is part of the FTSE 100 and it represents the eighth-largest company on the index.
Avg. Volume: 53,135,386
Market Cap: £30.65 billion
PE Ratio: N/A
Dividend Yield: 7.01%
Although Vodafone's annual revenue and earnings seem to be declining, it still pays its investors a healthy dividend of 7.01% and therefore, it deserves its spot on the top dividend-stocks list.
Phoenix Group Holdings is one of the largest insurance providers in the UK. The company specialises in the acquisition and management of life insurance and pension funds. Founded in 1857 as The Pearl Loan Company, it has acquired multiple companies since then, including Standard Life Assurance and ReAssure Group in 2020.
Avg. Volume: 1,551,325
Market Cap: £6.97 billion
PE Ratio: 9.50
Dividend Yield: 6.71%
The dividend for Phoenix Group Holdings has been increasing steadily since its first payout in 2010. Despite its share price plummeting in the first quarter of 2020, it has managed to climb back 20% over recent months and it shows resilience to any further drops.
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.
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.
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 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.
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.
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.
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.
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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 such as a company's valuation. All of these factors 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.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.