Dividend stocks allow you to combine the fruits of capital gains and regular income payments. The dividends that you receive are a way for the respective company to share its profits with stockholders. After all, you and your fellow investors are the ones that own the company – so it makes sense that surplus profits are split evenly between each stockholder.
If you think that dividend stocks are important for your long-term investing goals, you’ve come to the right place. In this guide, we explore the best dividend stocks in the UK, review the top share brokers, and provide some handy information on what you need to know before making an investment.
- 1 What are Dividend Stocks?
- 2 Investing vs trading dividend stocks
- 3 The Best Dividend Stocks in the UK for 2021
- 4 Best Dividend Stocks FTSE 100
- 5 How to Pick High Dividend Stocks
- 6 Best Dividend Stock Brokers in the UK
- 7 How to Buy Dividend Stocks in the UK
- 8 Step 1: Open an Account and Upload ID
- 9 Step 2: Deposit Funds
- 10 Step 3: Buy UK Dividend Stocks
- 11 Conclusion
- 12 FAQs
What are Dividend Stocks?
As the name suggests, dividend stocks are shares that pay dividends. If you’re unfamiliar with what dividends actually are, they are simply a way for companies to share their surplus profits with stockholders. That is to say, buy holding just a single share, you will be entitled to dividends as and when they are paid by the company.
In order to set the scene, let’s look at a quick example of how a dividend stock works in practice.
- You hold 500 shares in BP
- In Q3 2020, BP announces that it is going to pay a dividend of 12p per share
- The distribution date is set for September 28th 2020
- You hold 500 shares, meaning that you will be entitled to a dividend payment of £60
- When the dividends are paid by BP, this will be reflected in your stock broker account
As you can see from the above, the respective dividend paying stock will announce how much it will pay, alongside the date in which it intends to do this. In theory, the better a company performs, the more it will release in dividends. However, this isn’t always the case.
For example, when British American Tobacco shares went through a tough time between 2017 and 2019, it actually increased its dividend. This was to ensure that stockholders were still rewarded.
On the other hand, companies will sometimes suspend dividends when they are not performing well. This became riff during the coronavirus pandemic, with many, many companies announcing a suspension of dividends until further notice.
Investing vs trading dividend stocks
There are two main methods that allow you to gain exposure to dividend stocks – investing in stocks and trading stocks. Below we outline the main differences between the two.
Investing in dividend stocks
Firstly, the traditional way is referred to as ‘investing in stocks’. This means that you will be buying the stocks through a share dealing site, and actually own a percentage of the respective firm.
This also means that you will have a right to vote in shareholder meetings, as well as collect dividends when they are paid. This type of trading is suited for long-term investors that simply want to buy shares and hold on to them for several years. Along the way, the investor will hope to grow their wealth through capital gains and dividends.
Trading dividend stocks
While investing in dividend stocks is suitable for those of you that want to play the long term game, trading is a completely different kettle of fish. The overarching reason for this is that you will be speculating on the future direction on the dividend stock in question. In order to do this effectively, you will be utilizing stock CFDs.
Put simply, stock CFDs are tasked with tracking the stock price of the company. Crucially, you will not own the underlying stock, as you are speculating on its short-term price movement.
- Let’s suppose that you are trading a dividend stock like Tesco
- The current price of Tesco shares on the London Stock Exchange is 212p
- As such, the price of the Tesco stock CFD is also 212p
- If the price of Tesco shares go up by 1.4% on the London Stock Exchange, the CFD will also go up by 1.4%
Then, you need to determine which way you think the Tesco CFD stock will move.
- If you think the dividend stock CFD will increase in value, you place a ‘buy order’
- If you think the dividend stock CFD will decrease in value, you place a ‘sell order’
An additional benefit of trading dividend stocks is that you will be able to apply leverage. This means that you can amplify your stakes, and effectively trade with more than you have in your account. In the UK, stock CFDs can have leverage of up to 1:5 applied, and even more if you are classed as a professional trader. For example, if you trade Royal Mail stock CFDs at a stake of £300, this would permit a maximum trade size of £1,500 when applying leverage of 1:5.
In theory, by trading stock CFDs, you do not own the asset as thus – won’t be entitled to dividend payments. However, some of the best CFD brokers in the UK space actually adjust your account balance to reflect a dividend payment.
- For example, let’s suppose that you are long on a dividend stock CFD like Apple
- You have 10 contracts open, meaning you are trading 10 Apple stock CFDs
- Apple announces a dividend payment of $3.80 per share
- As such, your CFD brokerage account will be positively adjusted by $38 ($3.80 x 10 CFD contracts).
On the flip side, if you were going short on Apple stock CFDs, you would actually have $38 deducted from your account. As such, you as a short-seller would be funding the dividend payment for those going long!
The Best Dividend Stocks in the UK for 2021
So now that you know what they are, we are now going to discuss some of the best dividend stocks in the UK market. As always, you are strongly advised to perform your own, independent research before buying specific dividend stocks. After all, the online stocks and shares arena is a subjective battleground.
Note: The dividend yield figures are based on the most recent distribution. Dividend yields go up and down depending on various factors, so never assume that you will be entitled to the same amounts as listed below.
1. GlaxoSmithKline (GBX) – 4.5% Yield
GlaxoSmithKline is a UK pharmaceutical company that has operations across most continents. The firm is strong, stable, and most importantly, has a strong track record of paying dividends.
Although this was averaging over 6% in 2015, its most recent distribution stood at 4.5%. This is actually very healthy and makes it one of the very best dividend stocks in 2021, especially when you consider just how many FTSE 100 companies suspended dividends this year.
2. Legal & General (LGEN) – 8% Yield
This particular dividend stock is a FTSE 100 constituent involved in the financial services space. Legal & General has a market capitalization of just over £13 billion, and is now behind one of the most attractive dividend policies in the UK.
In its most recent distribution, this stood at around the 8%-mark. This could, however, come under threat as per the COV-19 pandemic, so do bear this in mind.
3. British American Tobacco (BAT) – 6.9% Yield
We briefly mentioned British American Tobacco’s recent history of paying strong dividends, and as per its July 2020 announcement, this looks set to continue. At a dividend payment of 53p per share, this works at a yield of approximately 6.9% – based on its current share price of just over £30 – which makes it one of the best UK dividend stocks for 2021.
It should also be noted that there is an attractive amount of share price upside for British American Tobacco, too. This is because, at £30 per share, this is far short of its 2017 peaks of £54.
4. AstraZeneca (ANZ) – 2.5% Yield
Much like GlaxoSmithKline, AstraZeneca is a major pharmaceutical company that is a leading player on the FTSE 100. In fact, with a market capitalization of just over £100 billion, this actually makes it the most valuable company on the FTSE as of July 2020.
As a strong and stable defensive stock, AstraZeneca is currently yielding just 2.5%, which is in and around the average of UK health companies. However, the firm’s balance sheet is arguably as strong as it gets, so you will be holding a high-grade dividend stock that could be somewhat immune to a wider stock market downfall.
5. GVC Holdings (GVC) – 2.2% Yield
GVC Holdings is a UK-based company that owns a variety of online and land-based gambling establishments. This includes betting shops like Ladbrokes and Coral, as well as online sportsbooks, casino, and bingo brands like bWin, Sportingbet, and Foxy Bingo.
The firm’s most recent dividend amounted to 18p per share, which, based on today’s stock price of 835p, amounts to a trailing yield of just under 2.2%. Sure, nothing to write home about. But, GVC Holdings has seen its stock price increase by almost 150% since March 2020 – which is huge – and makes it one of the best dividend stocks for growth potential in the UK.
6. BP (BP) – 10.6% Yield
When BP last announced that it would be paying a dividend yield in excess of 10%, the general consensus was this was nothing short of unsustainable. Then, when the COV-19 pandemic brought demand for oil to record lows, the markets were all-but-certain that a dividend cut was inevitable.
However, while recognizing the wider challenges for the business, management at BP are adamant that a dividend cut will not be the case. As a result, it appears than an upcoming yield of 10.6% is in the making. If you’re keen to get your hands on oil shares like BP, you stand the chance to do this at a major discount.
7. Tesco (TSCO) – 4% Yield
Supermarket giant Tesco is still the leading player in the UK grocery scene. Its most recent earnings report was super-positive, noting a sales increase of around 8%.
Much of this was reported in the online division of the firm, which does make sense when you consider the stay-at-home income of the COV-19 lockdown. Nevertheless, the firm is expected to pay a dividend payment at a trailing yield of 4%, which is healthy.
8. Unilever (ULVR) – 3.5% Yield
Consumer goods firm Unilever is a Jack of All Trades in the product department. The company offers major brands in the beauty, ice cream, energy drink, cleaning, and personal care sectors.
Many of its products would fall within the defensive stock category, meaning that people will buy them regardless of how the economy is performing, so its one of the best dividend stocks to buy and hold. Best of all, this strong and tablet FTSE 100 leader offers a healthy dividend of 3.5% – based on July 2020 prices.
9. DIAGEO (DGE) – 2.7% Yield
DIAGEO is a multi-billion pound company that is behind some of the biggest names in the alcoholic beverage arena. This includes everything from Guinness, Captain Morgan, Jonnie Walker, Smirnoff, and Baileys.
This particular dividend stock is at a trialling dividend yield of 2.7%, based on current prices. When you factor in an earnings multiple of 13, this does make the firm somewhat attractive.
10. Vodafone (VOD) – 6.3% Yield
Vodaphone is one the largest telecommunication companies globally – so it comes as no surprise to learn that the stock has a market capitalization of over £33 billion.
If you’re the type of investor that is looking to obtain defensive shares to protect you from a possible stock market downward trend, Vodafone could be the answer. Not only are its products and services somewhat resistant to economic woes, but it currently pays a rather juicy trailing dividend yield of 6.3%.
Best Dividend Stocks FTSE 100
The FTSE is a share index comprised of the 100 companies on the London Stock Exchange that have the highest market capitalisation. All of the companies featured on our list of the top 10 dividend stocks are on the FTSE 100 index, so they’re also the best FTSE 100 dividend stocks.
How to Pick High Dividend Stocks
So now that we have run through some of the best dividend stocks on the FTSE 100, we now need to spend some time exploring how to pick high dividend stocks yourself. To help you along the way, below you will find some handy tips to look out for.
Tip 1. Look at Historical Dividend Yields
Firstly, the best way to pick high dividend stocks is to look at the firm’s historical payment policy. That is to say, look through the size of the dividend yield. For those unaware, you can calculate the dividend yield by taking the total value of dividends paid through the year, and then divide that into its stock price.
For example, if Barclays paid out a total of 4p per share in dividends in 2020, and the shares are priced at 100p, this would translate into a dividend yield of 4%.
2. Look at how the Yields Compare to Market Competitors
Once you have assessed the firm’s historical dividend payments, you then need to compare its recent yields to industry counterparts.
For example, let’s suppose that IBM pays a yield of 3%. While you might be content with this, if the average yield for tech-stocks in the US is 5.5%, you might need to assess.
3. Look at Free Cash Flows and Debt Levels
Although it is not an exact science, in theory, the better a company is performing, the more chance there is that you will receive a healthy yield. But, much of this is dependent on the amount of free cash flows that the company in question has.
In other words, if the firm is not planning to use its cash to invest in other business ventures, then it might decide to increase the size of its dividend. You should also look at what the firm’s debt-to-equity ratio is like. Crucially, if the company has too much mounting debt, it might not be in a position to pay dividends.
Best Dividend Stock Brokers in the UK
As noted above, there are countless UK stock brokers that allow you to buy dividends stocks from the comfort of your home. While choice is always a good thing, this can make it difficult to find a platform that meets your needs.
To help ease the process of selecting a platform, below we have listed some popular UK brokers that offer dividend stocks – either as a traditional investment or through stock CFDs.
1. eToro – Buy the Best Dividend Stocks with No Commission
If you’re looking to buy dividend stocks in a cost-effective manner, eToro is well worth considering. This broker, which is regulated by the FCA, allows you to buy shares without paying any dealing charges. The platform doesn’t charge any monthly or annual fees, either.
You will have access to over 800 stocks, including many of the best dividend stocks for 2021. This includes companies listed in the UK, as well as 16 international markets such as the US, Hong Kong, Saudi Arabia, Canada, and Germany.
Opening an account with eToro takes just a few minutes, and you can deposit funds with a debit/credit card, bank account, or e-wallet. Minimum deposits stand at $200, although you can invest from just $50 into each dividend stock. This means that you will be able to create a diversified portfolio of dividend-paying shares without breaking the bank.
You can also make use of eToro’s innovative social and copy trading tools. You can interact with other users through the social network, and even copy the entire portfolios of top stock investors with the help of eToro’s famous CopyTrader tool!
As note above, eToro is regulated by the FCA, so your money is safe. In fact, the platform is also covered by the FSCS, so this covers your investments up to the first £85,000. If you want to buy, sell, or trade dividend stocks on the move, eToro also offers a mobile investment app.
- Social and copy trading tools
- Buy stocks without paying any commission or share dealing charges
- 800+ stocks listed on UK and international markets
- Accepts PayPal
- Mobile investment app
- Regulated by the FCA and other leading bodies
- Not suitable for advanced traders that like to perform technical analysis
75% of retail investor accounts lose money when trading CFDs with this provider.
2. Plus500 – Commission-Free Stock CFD Trading Platform
If you’re more interested in trading dividend stock CFDs, it might be worth considering Plus500. The CFD trading platform is home to thousands of financial instruments, including over 2,000 stock CFDs. This covers both UK and international markets, so you will have access to a wide variety of economies.
Plus500 does not charge any trading commissions, and you will always have the option of placing a buy or sell order. Leverage for UK retail traders is capped at 1:5 when trading stock CFDs, although higher leverage is available on other CFD asset classes.
You will need to meet a minimum deposit of £100, and supported payment methods include debit/credit cards, bank accounts, or Paypal. There are no fees to deposit and withdraw funds, which is an added bonus. Plus500UK Ltd is authorized & regulated by the FCA (#509909).
- Commission-free and tight spreads
- Thousands of financial instruments across heaps of markets
- Retail clients can trade stock CFDs with leverage of up to 1:5
- You can short-sell a stock CFD if you think its value will go down
- £100 minimum deposit
- Mobile trading app
- CFDs only
- More suitable for experienced traders
80.5% of retail investors lose money trading CFDs at this site
3. IG – Trusted UK Stock Broker With Competitive-Fees
IG was launched back in 1974, so it has over four decades worth of experience in the UK brokerage arena. While eToro is certainly the cheapest in the market, IG stands out for its stock library of over 10,000 firms. Naturally, this includes companies listed in the UK, as well as several international markets.
Although IG isn’t commission-free, it does allow you to buy dividend stocks from just £8 per trade. If you find yourself trading regularly throughout the month, this can be reduced to just £3. IG is also useful if you want to trade dividend stock CFDs.
You can do this through its CFD trading platform, or via a spread betting facility. Deposits and withdrawals are facilitated by debit/credit cards or bank transfers, and account minimums start at £250. The broker is regulated by FCA, alongside a number of other licensing bodies. A mobile app is also available on both iOS and Android devices.
- Trusted UK broker with a long-standing reputation
- Good value share dealing services
- Spread betting and CFD products
- Access to UK and international markets
- Excellent proprietary platform
- Great research department
- Minimum deposit of £250
- US stocks have a $15 minimum commission
How to Buy Dividend Stocks in the UK
Got your eye on a number of dividend stocks, but not too sure how to buy them? In this part of our guide, we are going to walk you through the process of buying dividend stocks today. Although there are many UK stock brokers that offer dividend stocks, we are going to show you the process with eToro – not least because you are able to buy shares without paying any dealing fees.
Step 1: Open an Account and Upload ID
Head over to the eToro website and open an account.
Some of the personal information that you will need to provide includes:
- Full Name
- Home Address
- Date of Birth
- National Insurance Number
- Contact Details
Known as the KYC (Know Your Customer) process, you will now need to upload some verification documents.
- Passport or driver’s license
- Proof of address – Utility bill or bank account statement
You can, however, upload the documents at a later date. Until then, your deposit limit will be capped at 2,000 (about £1,800), and you won’t be able to make a withdrawal.
Step 2: Deposit Funds
You will now need to deposit some funds. eToro has a minimum deposit amount of $200 (about £160), and you will incur a small conversion fee of 0.5%. You can choose from a debit/credit card, bank account, Paypal, Skrill, and Neteller.
Step 3: Buy UK Dividend Stocks
Once you have funded your account, you can then buy dividend stocks straight away. If you know which dividend stocks you wish to buy, use the search box at the top of the screen. In our example below, we are buying stocks in British American Tobacco.
Then, we need to click on the ‘Trade’ button.
Finally, enter the amount that you wish to invest (in US dollars) and confirm the order.
Dividend stocks are ideal for those of you that wish to earn passive income, while at the same time target capital gains. Best of all, you will have the opportunity to re-invest your dividend payments into other stocks, subsequently allowing you to grow your money faster.
There are hundreds of UK-based dividend-paying firms to choose from, and many more located overseas. This can make it challenging to know which are the best dividend stocks to buy. With this in mind, it’s always a sensible idea to build a diversified portfolio of dividend stocks, so that you are not overexposed to a small number of entities.
If you are looking to buy the best dividend stocks in the UK in the easiest and most cost-effective way, you can do so with 0% commission on our recommended broker, eToro. To get started with the FCA-regulated platform now, simply click on the link below!
eToro – Buy the Best Dividend Stocks with No Commission
What are the best dividend stocks?
It all depends on how you define the 'best dividend stocks'. For example, while some FTSE 100 companies are now paying over 10% per year, many fall within the medium-to-high risk threshold. At the other end of the spectrum, strong and stable stocks with defensive qualities might pay a much lower yield. As such, it's all about the level of risk that you are willing to take.
Do penny stocks pay dividends?
Penny stocks are typically small companies that are not yet in a position to distribute cash to shareholders. As a result, very few penny stocks pay dividends.
Do CFD stocks pay dividends?
In theory, CFD stocks can pay dividends, but the process is slightly different. So, if you are going short on a dividend stock CFD, the respective dividend payment will be taken from your account. If you are long on a dividend stock CFD, the opposite will happen. As such, most CFD brokers are able to readjust your account, so for all intents and purposes, you will receive a dividend.
What does it mean when a company suspends dividends?
When a company is not performing as well as it would like, it might be forced to suspend dividends. This means that all dividend payments are off the table until further notice.
What are dividend aristocrat stocks?
If a dividend stock is referred to as an 'aristocrat, this means that it has increased the size of its dividend for 25 years straight.