UK dividend stock can offer the best of both worlds. If you distribute by each company, you not only receive regular payments, but you also have the opportunity to increase the value of your investment through capital gains. But how do you know which dividend stock is best for your portfolio?
This article takes a look at the best UK dividend stocks for 2021. It also provides background on how dividend stocks work, reviews the best brokers that offer dividend stocks, and shows you what to do to invest today.
What is dividend stock?
Dividend shareholders are simply public corporations that pay dividends. This means that if you own more than one share of the company’s stock, you can distribute it. This allows publicly traded companies to share a portion of their profits with shareholders.
In most cases, dividends are paid every three months, but some are paid every six months. However, not all companies pay dividends. This is especially the case for large tech stocks such as Facebook, Uber, Netflix, and Amazon.
If you still have dividends in your portfolio, you can use them to buy best stocks and supplement your investment. This means that you can not only increase your assets through capital gains (increasing the value of stocks), but you can also increase your assets through quarterly or semi-annual dividends.
The Best Dividend Stocks in the UK 2021- Our list
- Rio Tinto
- British Telecom (BT)
- British American Tobacco (BAT)
Anglo-Australian mining company Rio Tinto was considered the highest dividend stock in terms of dividends for its overall FTSE 100. The company has had the highest median returns to date in 2020 and 2021. There is a disruption in supply, not demand. With a median dividend of 270.84 pence per share and a special dividend of 133.26 pence in 2021, Rio Tinto paid out a significant portion of these earnings as dividends. That median dividend alone represented the highest dividend payout in miner history (over £6.5 billion in total).
Rio Tinto pays dividends twice a year in the form of interim and final dividends. It usually takes place in April and September each year, and Rio Tinto is known for consistently sticking to this date and paying dividends consistently over the past five years.
Tesco is the UK’s largest supermarket chain, with operations in different sectors both domestically and internationally. This includes everything from clothing, insurance, credit cards, and consumer finance. Regarding its dividend policy, the company registered a 58% increase from its last payment. This increases the annual return of Tesco stock by more than 4%.
British Telecom (BT)
British Telecom (BT) is the UK’s leading television and telecommunications company with global operations in 180 countries. This particular FTSE 100 stock offered its shareholders a dividend yield of 9.5% from its recent dividend. This makes BT stock one of the UK’s most generous dividend payers. However, it remains to be seen how sustainable such high performance is for the company.
Persimmon was first established in 1972 and is a leading UK home builder. The most recent dividend payout is huge with an annual yield of 8.68%, making it one of the UK’s top dividend stocks for 2021. Persimmon’s earnings fell from last year’s earnings. reported, which may adversely affect future dividend payments.
British American Tobacco (BAT)
British company British American Tobacco (BAT) has had a good 2020 and 2021 so far. and Glo related products. As a result, the 2020 overall dividend increased from 2.5% to 215.6p, which was paid out in four equal quarterly payments of 53.9p each through February 2022. This equates to a dividend payout rate of 65%, which the company also holds.
M&G, an LSE-listed investment manager, struggled in 2020 due to chaos caused by the COVID-19 pandemic and headwinds in its first year as an independent company after breaking up with its incumbent, Prudential.
Nevertheless, the company has kept its post-prudential promise to pay stable and growing dividends so far in challenging conditions in both 2020 and 2021. This has impressed investors and analysts alike and is a good dividend policy. This is especially true if the company succeeds in realizing the goals of further expansion into the US, Asian, and South African markets that have already begun.
How to Choose Stocks with High Dividends
Choosing high-dividend stocks at home can be a daunting task. Because just because a UK company pays high quarterly dividends doesn’t mean it will continue to do so. With that in mind, here are a few tips on how to easily choose high dividend stocks.
View past dividend payments
The first port of call is to look at the company’s historical dividend policy. A good example of this is British America Tobacco. On the one hand, we may be somewhat skeptical about the sustainability of the 7.2% dividend yield. But for BAT, the tobacco giants have increased their dividends every year over the past 20 years. This is the type of company you want to look for if you are looking to build the best dividend stock and manage portfolio.
In addition to studying a company’s historical dividend policy, you should also look at its financial metrics. In particular, take the time to analyze the relationship between dividend yield and return on equity. For example, let’s say you invest in high yeild UK stocks with an annual dividend of 5%. This is a healthy form of passive income, but if the company loses 10% of its share price, it will not reach its target. On the other hand, it is important to remember that investing in stocks should be considered long-term. In fact, in general, you should not sell stocks for at least five years.
Consider a Dividend Stock ETF
When all is done, it’s easier to switch to an ETF. For those who don’t know, exchange-traded funds (ETFs) allow you to invest in your dividend basket in a single transaction. In other words, the ETF service provider is buying and selling dividends on your behalf. This means that once you invest, the rest of the process is manual. It also means you don’t have to spend a lot of time researching dividend stocks. Crucially, ETFs typically distribute dividends every three months.
How to Buy Dividend Stocks in the UK
Now that you know how dividend stocks work, let me guide you through the buying process today. To show you how easy it is to create the best portfolio of UK dividend stocks at the push of a button, we decided to show you the process through our recommended best stock trading broker, eToro.
Step 1: Find your chosen dividend
A search box will appear at the top of the screen. Just enter the name of the dividend stock you want to buy and click on the corresponding result. In this example, you are free to buy shares of any company you want, but you want to buy stock in British American Tobacco.
Step 2: Click “Trade”
Click on the blue “Trade” button to go directly to the British American Tobacco (or stock of your choice) trading page.
Step 3: Set up an order and buy stocks with dividends
Now you need to enter the amount you want to invest in the selected dividend stock. In this example, you are buying British American Tobacco stock worth $100. Finally, click the “Open Trade” button to complete your investment.
Best Platform for Dividend Stocks
If you want to buy UK dividend stocks, you need to find an online broker that suits your needs. There are many trading platforms active in this space, so factors such as fees, fees, payment methods, and the number of shares available should be evaluated. Of course, you need to make sure that the broker you choose is regulated by a licensing body like the FCA. Below we take look at the most popular platforms for buying and trading the best UK dividend stocks.
eToro is a leading broker with over 800 global stocks, many of which pay dividends. This includes stocks listed in the UK as well as overseas, including companies based in the US, Canada, Japan, Germany, and Sweden.
A common benefit of buying and selling stocks using eToro is that you don’t pay any transaction fees. Instead, you can trade without commission on the platform. The only fees to consider are spreads, a $5 withdrawal fee, and a small 0.5% conversion fee.
eToro initially made a name for itself as an innovative social trading broker that combines traditional brokerage services and social networks to interact with over 12 million other users. eToro also offers copy trading tools. Copy the entire portfolio of top investors with the push of a button.
Plus500 is a CFD provider that hosts thousands of financial products. In the stock department, this includes over 2000 stock CFDs. Now, if you choose Plus500 and its CFD offerings, you are not owning the underlying stock you are trading. Instead, it estimates the future value of the asset. The good news, however, is that dividends are still reflected in the underlying value of stock CFDs.
As a rough example, if a company pays a dividend yield of 20p and you help share 20 CFDs, a Plus500 cash account would theoretically put £4 into your account. It is important to note that the decision on the CFD route with the Plus500 has several advantages. For example, you can enter buy and sell positions through a broker. The former allows you to guess the loss of business value. All operations on Plus500 are also commission-free.
Plus500 also allows leverage up to 1:30 for UK retailers. If you choose to use CFDs on stocks, you are limited to 1:5. Essentially, Plus500 is regulated by the FCA and its parent company is listed on the London Stock Exchange.
Forex Capital Markets, better known as FXCM, is a well-known online broker. Similar to Plus500, FXCM is a professional provider of CFDs. This, in turn, means that you are trading, not owning, dividend stocks. However, all long positions in stock CFDs are credited with that dividend.
On the other hand, if the company runs out, the dividend will be deducted from the account, so you are guessing a loss of value. FXCM is also a great option if you want to trade stock CFDs with leverage. You can get up to 1:5 when trading CFDs on stocks, so an account balance of £500 can trade up to £2500.
Brokers give you access to a wide variety of financial markets, including thousands of companies on multiple exchanges. FXCM is also competitive in the pricing department as it does not charge any trading fees on stock CFDs. Also, large markets like the US and UK have narrow spreads. Of course, there are markets with slightly higher spreads in less liquid markets.
Dividends can increase money in two ways: traditional capital gains and frequent dividends. Not all UK companies pay dividends, but many do. For this reason, seasoned investors often put part of their portfolio in dividends. However, it is important to remember that you should not invest simply because a company pays dividends. To find the best dividend stock for your portfolio, you need to consider several other factors. Whether the dividend payment is sustainable over the long term and the company’s future growth prospects compared to its industry peers.
If you are looking to start investing in dividend stocks today, eToro is worth considering. FCA brokers list more than 800 stocks, all of which can be purchased with no stock trading fees, and you can also take advantage of our innovative copy trading tools.
Frequently Asked Questions
What are the best dividend stocks?
It can be assumed that the best dividend stocks in the UK are the ones with the highest returns. Annual performance is important, but there are other metrics that you should look at closely. For example, some companies raise their dividends in response to stagnant stock prices.
Do penny stocks pay dividends?
In most cases, penny stocks don’t pay dividends. The main reason is that penny stocks are typically young companies at the beginning of their corporate journey, so they don’t yet have the financial resources to share their profits.
Do CFD stocks pay dividends?
Yes, but ultimately this is at the discretion of the broker you choose. In most cases, CFD brokers will deposit their dividends into your cash account if you have a long position in a stock. However, if you short a specific company, the dividend will be deducted from your balance. With this in mind, short selling guarantees dividend payouts for those who are actively buying.
What is the average UK dividend payout?
The figure changes quarterly, but the average dividend payout in the UK is around 4%.
When do I receive dividends?
Most companies pay dividends every three months, and some pay dividends twice a year. When a company pays a dividend, the dividend is posted to the brokerage account containing the stock.