Dividend investing has long been a popular strategy for both beginner and seasoned investors in the UK. In this article, we’ll break down a few of the best dividend stocks UK investors can access as suitable long-term investments, showcasing some of the best options available for October 2023, and providing guidance on investment strategy, taxation, and more.
| Main aims when buying stocks? | • Growth in the price of the stock • Receiving dividend payments • Gaining voting rights if the company grants them |
| Most important thing to remember? | Always check that the company’s earnings and revenues are growing |
| Should I worry about the risks? | That really depends on your risk profile, but no investments are 100% safe |
| Some top dividend stocks? | • Imperial Brands (IMB) • British American Tobacco (BATS) • Unilever (ULVR) |
Dividends explained
A dividend is a payment made by a corporation to its shareholders, typically in paid out in the form of cash or additional shares. It represents a portion of the company’s profit or earnings that is typically paid on a monthly, quarterly, or annual basis, and the frequency can vary.
Dividends are a popular way for investors to generate income from their investments. They can also be used to reinvest in the company, which can help to grow the shareholder’s investment over time. Investors with an extensive investment portfolio can live off their dividend payments.
Not all companies pay dividends, especially those that are still growing rapidly. Instead, these companies might reinvest profits back into the business. Mature companies, however, often return value to shareholders through regular dividend payments.
It is advisable to choose the best dividend stocks if you want to learn how to invest money and earn income. You should have several aims in mind when you buy stocks (also referred to as shares or equities).
- Growth in the price of the stock
- Receiving dividend payments
- Gaining voting rights if the company grants them
The top dividend-paying stocks UK investors hold are highly sought after on the stock market.
10 of the best dividend stocks right now
It isn’t easy to pick the 10 best dividend stocks UK investors should buy today for several reasons. There is a cost of living crisis, rising inflation, and high energy costs to consider.
The following are 10 of the best dividend stocks in the UK for October 2023, based on various factors, including dividend yield, financial strength, and growth prospects. Data are as of September 28, 2023.
British American Tobacco (BATS)
BAT is a global powerhouse in the tobacco sector, championing renowned brands. Its share price stands at £25.38 with an expected dividend yield of 8.80%, making it one of the best dividend stocks with a high dividend yield. The annual dividend is 230.9p per ordinary share of 25p. The scheduled interim dividend is 57.72p per share, denoting a 43.04% profit payout ratio. The ex-dividend date is September 28, with a scheduled payment on November 3. The next ex-dividend date is December 21, with a scheduled payment on February 1, 2024. With shareholders’ equity of £58.535 billion, the BAT has delivered a 12.20% return on equity to shareholders.
Imperial Brands (IMB)
Imperial brand is esteemed for its vast array of tobacco products. Shares are valued at £16.70 with an expected dividend yield of 8.03%. The annual dividend is 142p. It’s set to dispense an interim dividend of 21.59p per share, reflecting an 80.21% payout ratio. The ex-dividend date was August 17, with the dividend payment paid on September 29. With equity at £ 15.038 billion, the firm has realised a 29.65% shareholder return.
BT (BT.A)
A frontrunner in the UK’s telecommunications domain. Shares are going for £1.16 with an expected dividend yield of 6.81%. The company has pinpointed a final dividend of 5.539p and an interim dividend of 2.31p per share, giving a full-year fiscal year 2023 dividend of 7.70 pence per share. This translates to a 45.57% payout ratio. The 5.39p dividend had an ex-dividend on August 3, payable by September 13, while the interim ex-dividend date will be sometime in December. Holding a £11.651 billion equity, BT has achieved a 33.22% shareholder return.
Lloyds Banking Group (LLOY)
A cornerstone in UK banking. The current share price is £0.441, with an expected dividend yield of 6.06%. An interim dividend of 0.92p per share has been announced, a 15 increase from the previous year, signifying a 39.02% payout ratio. Ex-dividend trading was on August 4, with the dividend to be dispatched on September 12. An interim dividend payment will be made in 2024. With equity of £28.167 billion, Lloyds gifts its shareholders a 12.63% return. Lloyds is one of the best dividend stocks with a good market capitalisation, making it a large-cap company.
Schroders (SDR)
Schroders is a prominent investment management entity. Shares are listed at £4.04 with an expected dividend yield of 5.29%. The firm’s interim dividend is determined at 6.5p per share per ordinary share of 20p, capturing a 77.70% payout ratio. Trading will exclude this dividend from August 17, payable by September 21. With £6.456 billion in equity, Schroders records a 10.37% shareholder return.
WPP (WPP)
WPP is an advertising behemoth. The share price is pegged at £7.18 with an expected dividend yield of 5.13%. They’ve charted an interim dividend of 15p per share, indicating an 80.74% payout ratio. Ex-dividend trading is set for October 12, with the payment date on November 3. Final dividends are paid in the subsequent year to which they relate. With equity reaching £7.757 billion, WPP presents a 14.96% return to its shareholders.
Johnson Matthey (JMAT)
Johnson Matthey Masters in advanced materials and sustainable tech. Shares currently fetch £16.04 with an expected dividend yield of 4.41%. The company has an annual dividend payment of 77p, equating to a 53.62% payout ratio. They’ve announced an interim dividend of 22p per share, and payment was made on February 1. A final dividend payment of 55p is to take place in December. With a £2.932 billion equity base, the company furnishes a 10.60% return to its investors.
Admiral (ADM)
ADM specialises in insurance and related services. Today’s share price is £23.71, with an expected dividend yield of 4.34%. The annual interim dividend is £1.030. The flagged interim dividend is 51p per share, denoting a 67.80% profit payout ratio. Ex-dividend trading is on September 7, with a scheduled disbursement on October 6. With a market capitalisation of £7.224 billion, Admiral has yielded a 35.22% return to shareholders.
GSK (GSK)
Pharmaceutical giants with global acclaim. Shares are priced at £15.04 with an expected dividend yield of 3.78%. Their slated interim dividend is 14p per share, encapsulating a 45.57% payout ratio. The ex-dividend date was August 17, payable by October 12, while the next ex-dividend date is November 16, with a payment date of January 11, 2024. With an impressive equity tally of £ 61.825 billion, GSK has generated a 33.22% return for its investors.
Unilever (ULVR)
Unilever is a consumer goods magnate. Shares stand at £40.20 with an expected dividend yield of 3.71%. The annual dividend payment will be £1.5, with an expected payout ratio of 53.19%. The determined interim dividend is 37p per share. This entails a 147p routine and a 12p extra dividend. The ex-dividend date is August 3, with the dividend paid on August 31. The Q3 dividend payment will occur in December, and the Q4 payment will happen in 2024. With equity of £101.225 billion, Unilever has recorded a 39.90% shareholder return. Unilever is one of the best dividend stocks on the list for the high return on equity.
Reckitt Benckiser (RKT)
Leaders in health and hygiene products. The share price hovers at £57.64 with an expected dividend yield of 3.21%. They’ve announced an annual dividend payment of £1.87, mirroring a 59.22% payout ratio. There is an interim dividend of 76.60p per share with an ex-dividend date set on August 04, with the payment slated for September 15. Final dividends are paid in the subsequent year to which they relate. With a robust equity of £41.18 billion, the firm showcases a staggering 24.67% return to its shareholders. As you can see, these top 10 dividend stocks for UK investors are spread across many industries, from construction to consumer goods, insurance to oil and gas, and pharmaceuticals to precious metals.
How to invest in dividend stocks?
Investing in dividend stocks in 2023 is much like investing in other shares. Whether you are considering high yield UK stocks or shares in offshore companies around the globe, you need to know how to invest in dividend stocks.
Research: To pick the right one for you through which to access the highest-paying dividend stocks UK investors can buy, you will have to do your own due diligence. Do your research and look for companies that pique your interest. After identifying the dividend stocks to buy, research the companies in question based on their management team, indebtedness, competitive landscape, financial statements, dividend history and the industry it operates in.
Open a brokerage account: You must open a brokerage account to invest in dividend stocks. But first, compare the minimum deposits required, the price per trade, and the platform and management fees, which will essentially impact your bottom line. After opening a brokerage account, you can initiate the purchase and sale of the best dividend stocks of various companies. You can do this with banks or online platforms.
Purchase: Buy shares in the dividend-paying company, and these stocks can form part of your investment portfolio.
Monitor and Reinvest: Once dividends have been paid out, you can reinvest the dividends to buy more shares, benefiting from compound growth or take the dividends out as income.
Moneyfarm now offers a share investing option, which allows you to buy and sell shares using our platform or easy-to-use mobile app. You gain direct access to individual UK stocks, ETFs, and UK mutual funds or alongside a globally diversified, expertly managed portfolio.
How to select high dividend shares UK
The stock market is notoriously volatile. So, before you start investing, you need to be aware that your investments can fall and rise, and if you have to withdraw them for some reason when the market is at a low, you could lose out significantly.
When selecting the best UK dividend stocks, you should consider the following factors:
- Dividend Yield: The dividend yield is the percentage of the share price that is paid out in dividends each year to investors. A higher dividend yield means a greater potential for generating income from your investment. Always look for the best dividend yield stocks.
- Payout Ratio: The payout ratio is the proportion of a company’s profits or earnings that is distributed to shareholders as dividends.
- Consistency: In the pursuit of identifying suitable investment opportunities, it is advisable to pay attention to companies that have demonstrated a commendable track record of consistent dividend payments. Check out the dividend aristocrats with a proven track record of increasing dividend payments to shareholders.
- Growth Prospect: Companies with growth prospects should be considered. If the company is anticipated to experience growth in the foreseeable future, then its dividend disbursements will similarly exhibit an upward trajectory, which can be more attractive than those with higher but stagnant yields.
- Financial strength: You should invest in companies that have a solid financial position. This implies that the company should possess a robust financial statement and a commendable history of generating profits.
Regarding the best dividend stocks, what’s “best” for one dividend stock investor may not be suitable for another. The best dividend stocks can differ depending on an investor’s preference, which can be based on dividend yield vs. growth, dividend payout stability vs. volatility, geographic diversification, sector preference, and tax implications.
Taxation on the best dividend shares UK investors own
Dividend payments in the United Kingdom are liable to taxation. The dividends are taxed based on your income tax bracket. To determine your tax bracket, add your total dividend income to your other incomes (e.g., wages, rent, etc.), and it is possible to pay tax at more than one tax rate.
Everyone has a tax-free dividend allowance (DA) each year. The dividend allowance for the 2023/24 tax year is £1,000. Investors must pay income tax on dividend income above the dividend allowance limit. Also, income tax is not deducted from dividend income that falls within your Personal Allowance (PA) of £12,570, including any special dividends in your end-of-year dividend total.
Beyond this, taxpayers must pay a tax rate after the dividend allowance and Personal Allowance is used. The rates for 2023/24 are as follows:
- Basic rate taxpayers pay 8.75% on dividends income from £1,000 up to £36,700.
- Higher rate taxpayers pay 33.75% on dividend income from £36,700 up to £125,140.
- Additional rate taxpayers pay 39.35% on dividend income from £125,140.
For example, if you are a taxpayer who earns £10,570 in wages and £47,000 in dividend income. Your total income is £57,570, and you need to tax on £44,000.
| Income | Type | Tax Rate | Tax Payable |
| £10,570 | Salary | Tax-free PA | 0 % |
| £2,000 | Dividend | Tax-free PA | 0 % |
| £1,000 | Dividend | Tax-free DA | 0 % |
| £36,700 | Dividend | 8.75% Dividend Tax | £3,211.25 |
| £7,300 | Dividend | 39.35% Dividend Tax | £2,872.55 |
| Total Income tax to Pay | £6,083.80 | ||
There is another way of owning high yield UK stocks without being taxed – and that is if they are held in a Stocks and Shares ISA.
Stocks and shares (Investment) ISAs
An Individual Savings Account (ISA) allows UK residents to earn dividends tax-free. By investing through a Stocks and Shares ISA, you can shelter returns from capital gains tax and dividend tax.
Not only is any growth tax-free, but you also are not taxed on withdrawals. If you are wondering how to invest 100K or more, ISA investment portfolios containing the top dividend shares UK investors can access are one of the best options open to you. You can save yourself a considerable amount of money by not having to pay taxes.
You have a yearly ISA allowance and can contribute up to £20,000 to a Stocks and Shares ISA each year.
Managing risk
Investing in the best dividend stocks comes with investment risk. The financial value of your investment has the potential to decrease as well as increase. You may also not receive any dividends in the event of a decline in the company’s profits.
In order to effectively mitigate risk, diversification is crucial and knowing your risk profile is key. It is always advisable to diversify your investment portfolio. This implies allocating funds towards a diversified portfolio of various dividend-paying equities. Consider diversifying your investment by allocating funds to other financial instruments, such as bonds and cash equivalents.
Don’t put all your money in one sector, industry, or stock. Also, consider mixing dividend stocks with growth stocks or value stocks, mutual funds, and ETFs for a balanced portfolio. The best dividend stocks UK investors can have in their Stocks and Shares ISAs can earn significantly more, but there is an element of risk.
Although Stocks and Shares ISAs may be riskier, you can mitigate it by evaluating how risk-averse you are. If you can’t tolerate any risk whatsoever, go down the saving rather than investing route. If you are prepared to accept some element of risk, you must then decide how much, and you can select from a range of different risk investment portfolios.
With long-term investing, the duration is no less than five years. As far as diversification is concerned, the best dividend stocks UK ISA portfolios possess have inbuilt diversification according to the risk level.
Also, don’t forget that UK dividends are tax-free as long as the dividend income falls within your personal allowance and dividend allowance, including any special dividends in your end-of-year dividend total.
Invest with Moneyfarm Share Investing
Here at Moneyfarm, we have a Share investing platform designed to offer you a straightforward way of connecting with the stock market. You need to have a ISA Share Investing account, and you can access it online on any device, including mobiles, and use it to buy and sell shares.
The investment choices available include individual shares, exchange-traded funds, and UK-based mutual funds across different market sectors. The platform also allows you to invest in tandem with a fully diversified, professionally managed portfolio that provides you with a wide spread of options in alignment with your financial plans and goals that grants you a complete picture of your investments so you can make informed decisions.
Whether you choose to invest in familiar companies, explore various sectors with our Stocks option, immerse yourself in the world of ETFs, or broaden your investment reach with our selection of UK Mutual Funds, Moneyfarm’s Share Investing platform is designed to support your investment journey, providing a personalised and informed investment experience.
Finding the right personal wealth management specialist
Finding the right online investment advisor and digital wealth management company is also important. Look for certified professionals with a track record in dividend stock investments.
If you are uncertain about the best dividend stocks to invest in or how to oversee your portfolio effectively, consider engaging the advisory service of a personal wealth management specialist. They can help you find the best high dividend stocks UK investors can have in their portfolios is authorised and regulated by the Financial Conduct Authority.
This advice is primarily for individuals new to investing who want valuable advice tailored to their investor profile. A personal financial advisor can assist you in developing a comprehensive investment strategy and choosing suitable investments based on your unique requirements and circumstances.
FAQ
Are dividend stocks suitable for all investors?
While they offer steady income, they might not suit those looking for rapid growth. Assess personal financial goals before diving in.
What is the average dividend yield for UK stocks?
The average dividend yield for UK stocks, specifically those listed on the FTSE 100, typically ranged between 3% and 5%. The current dividend yield for FTSE 100 is 3.80%. The FTSE 100 is a stock index representing the 100 largest UK companies by market capitalisation, and it’s a good benchmark for the broader UK market.
Can companies cut or stop dividends?
Yes, dividends aren’t guaranteed. It’s crucial to pick companies with a solid history and future prospects.
*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
