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Best Dividend Stocks UK

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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 their earnings with stockholders.

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 popular dividend stocks in the UK, review some reputable share brokers, and provide some handy information on what you need to know before making an investment.

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 earnings with stockholders. That is to say, by 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 on 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 a 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

invest in dividend stocksFirstly, the traditional way is referred to as ‘investing in stocks’. This means that users who invest in these stocks will be purchasing them 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 purchase 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 of 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.

For example:

  • 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 have the opportunity to amplify your stakes, and effectively trade with more than you have in your account. In the UK, stock CFDs can have a 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. However, there is a lot of risk involved by leveraging your trade, since a loos in the trade could multiply losses by up to 5x as well.

In theory, by trading stock CFDs, you do not own the asset as this – won’t be entitled to dividend payments. However, some 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.

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Dividend Stocks in the UK for 2021

So now that you know what they are, we are going to discuss some of the available 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)

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%.

2. Legal & General (LGEN)

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 behind a strong dividend policy in the UK.

In its most recent distribution, this stood at around the 8%-mark. This could, however, come under threat as per the COVID-19 pandemic, so do bear this in mind.

3. British American Tobacco (BAT)

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.

At £30 per share, this is far short of its 2017 peaks of £54. Which means that the stock is available at a discounted rate.

4. AstraZeneca (ANZ)

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.

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 is adamant that a dividend cut will not be the case. As a result, it appears that 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, which could be sensible for those looking for very long-term investments and not short-term gains.

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 trialing dividend yield of 2.7%, based on current prices.

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%.

What to look for in Dividend Stocks

So now that we have run through some of the popular dividend stocks on the FTSE 100, let’s take a look at different features and reasons to factor in while investing Dividend stocks.

 1. Look at Historical Dividend Yields

Firstly, users should look for the firm’s historical payment policy. That is to say, look through the size of the dividend yield. For those unaware, the dividend yield can be calculated by taking the total value of dividends paid through the year, and then divide that into its stock price.

dividend yield

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.

Popular Dividend Stock Brokers in the UK

As noted above, there are countless UK stock brokers that allow you to purchase dividends stocks from the comfort of your home. While there are many choices available, this can make it difficult to find a platform that meets your needs.

Below we have listed some popular UK brokers that offer dividend stocks – either as a traditional investment or through stock CFDs.

1. eToro 

If you’re looking to purchase dividend stocks in a cost-effective manner, eToro is well worth considering. This broker, which is regulated by the FCA, allows you to purchase shares without paying any dealing charges. The platform doesn’t charge any monthly or annual fees, either.

The 26 million+ users who use eToro have access to over 2,500 stocks. 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 may deposit funds with a debit/credit card, bank account, or e-wallet. Minimum deposits stand at $10, which works out for users with a tight budget. This means that you will be able to create a diversified portfolio of dividend-paying shares without breaking the bank.

eToro also offers innovative social and copy trading tools which allows users to interact with other users through the social network, and even copy the entire portfolios of senior 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 trade dividend stocks on the move, eToro also offers a mobile investment app.

Stock Broker Minimum Deposit Fractional Shares? Pricing System Cost of Buying Stocks Fees & Charges
eToro $10 Yes – $10 minimum 0% commission on ALL real stocks, spreads for CFDs Market spread is not included when buying real stocks No Deposit fees, $5 withdrawal fee, $10 inactivity fee, no account management fees.

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2. Plus500 

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 purchase 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).

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3. IG 

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 purchase 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 have the option to 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.

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How to Purchase Dividend Stocks in the UK

In this part of our guide, we are going to walk you through the process of purchasing dividend stocks. Although there are many UK stock brokers that offer dividend stocks, make sure to begin trading with a suitable stock broker that caters to all your investing needs.

Here are 4 simple steps to get started on your investment process:

Step 1: Open Account

Head over to the homepage of your trusted broker and begin the account set-up process. You will be required to fill in your personal details – including your full name, email address and mobile number. Create a username and password for the platform to continue.

Step 2: Verification

Most reputable brokers in the UK are regulated by the FCA – which is why users may be required to verify their accounts. To do this, simply upload proof of ID (a copy of your driver’s license or passport) and proof of address (a copy of a bank statement or utility bill). Once these documents have been uploaded, your broker should verify them in a couple of minutes.

Step 3: Deposit funds

The next step is to deposit funds into your trading account. Most brokers may support 1 or more of the following payment methods:

  • Credit card
  • Debit card
  • Bank transfer
  • e-wallet

Choose your preferred payment option and deposit the funds into your account.

Step 4: Invest in Dividend Stocks

Once your account has been funded, proceed to search for any dividen stock or any other stock you wish to purchase on your platform’s search bar. Fill in the amount you want to credit into the trade, and confirm your transaction.

Conclusion

Dividend stocks can be a source of passive income, should you manage to identify stocks which cater to your investment needs. You may also have the opportunity to re-invest your dividend payments into other stocks.

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 dividend stocks to purchase. With this in mind, users can choose to diversify their assets in various dividend stocks.

However, remember to only invest in stocks after conducting your own research.

FAQs

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Kane Pepi author check sign Pro Investor

Kane Pepi is a British researcher and writer that specializes in finance, financial crime, and blockchain technology. Now based in Malta, Kane writes for a number of platforms in the online domain. In particular, Kane is skilled at explaining complex financial subjects in a user-friendly manner. Academically, Kane holds a Bachelor’s Degree in Finance, a Master’s Degree in Financial Crime, and he is currently engaged in a Doctorate Degree researching the money laundering threats of the blockchain economy. Kane is also behind peer-reviewed publications - which includes an in-depth study into the relationship between money laundering and UK bookmakers. You will also find Kane’s material at websites such as MoneyCheck, the Motley Fool, InsideBitcoins, Blockonomi, Learnbonds, and the Malta Association of Compliance Officers.

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