The past few years have been good for UK dividend stocks. And I don’t just mean high yields due to low share prices. No, payouts have been strong in cash terms too.
In 2018, the FTSE 100 paid a record of £85.2bn in dividends. That was before Covid, but we’re already getting back close to that level.
According to AJ Bell‘s Dividend Dashboard, 2022 is shaping up to pay £76.4bn. That might look like a weak year. But it was a record year for share buybacks, which helped top up the cash.
And forecasts for 2023 indicate a bounce back to £84.8bn, even without counting any special dividends. Today I look at five that I’d rate as among the best right now, based on the latest figures.
Yield and cover
That’s not just in yields alone, though. I also want to see good cover by earnings. And I look for prospects for the long term too.
| Company | Dividend yield |
Dividend cover |
5-year change |
Recent price |
| Aviva | 10.1% | 1.52x | -38% | 423p |
| Glencore | 9.1% | 1.90x | +31% | 499p |
| Legal & General | 8.7% | 1.60x | -8% | 253p |
| HSBC Holdings | 8.5% | 2.16x | -18% | 571p |
| Imperial Brands | 7.7% | 1.74x | -19% | 1,950p |
There are more big dividend forecasts out there. M&G, for example, is on 10.9% yield, but that’s not covered by forecast 2023 earnings.
Vodafone is down for an 8.9% yield, with the Taylor Wimpey yield at 8.4%. But, again, we’re looking at a lack of cover this year for these too.
Those might still be good buys. But they’d only make the grade for me if I saw solid cover in the next year or two. And I think good cover should help even more in a tough year.
Financials surge?
There’s one surprise here. It’s the climb of financial stocks in the yield stakes this time. Three out of the top five with covered dividends are financials, two insurance firms and one bank.
Forecasts suggest that financials are set to deliver by far the biggest dividend growth of the whole market this year. Might 2023 be the year that we Lloyds Banking Group holders finally see some gains? We can hope.
Hard to choose
Of the other two, I could have just as easily picked British American Tobacco as Imperial Brands. There’s an 8.5% yield on the cards there, with 1.52 times cover.
There’s only one miner left in the top 10, with or without cover, and that’s Glencore. These firms had led the big yields chart in past years.
Buy all five?
Now the big question — do I rate any of these as no-brainer buys? Well, some research is needed, and each has its own risks. But, you know, I think each on its own would come close for me.
I doubt I’d buy all five, as I don’t want too much cash in financials, even if they might be set for a great year this year. No, I’ll always diversify my stock picks.
But with that said, I do want to see how these five go over the next 12 months, for sure.
