Dividend investing is a way for investors to generate income from equities but it can also be used to create and enhance long-term capital growth and absolute returns. In this guide, you can also compare the best accounts for dividend investing.
The UK stock market has come in for a good deal of criticism in recent years and it’s impossible to deny that it has plenty of issues that need addressing.
However we can’t let those problems overshadow the UK stock market completely.
The UK has a tradition of hosting quality dividend paying stocks, and for now at least that continues.
We also shouldn’t forget that at least 70.0% of revenues in the FTSE 100 are generated overseas.
So despite the lackluster performance of the UK economy right now, many of the UK’s largest companies are not reliant on what happens at home.
Best UK Dividend Stocks 2025
Phoenix Group (PHNX) currently pays the highest annual dividend yield of 10.70% with a 10-year dividend growth rate of 2.78%.
Phoenix Group is a major player in life insurance and pension fund management, industries that tend to produce reliable cash flows. However, its dividend growth rate of 2.78% over 10 years is relatively low, suggesting that while the income is high, it may not grow substantially over time.
When trying to assess what are the best UK dividend stocks for 2025, there are several criteria we can use. These include the payment record, and the 10 year dividend growth rate.
The table below shows FTSE 100 stocks that have a history of continuous dividend payment of at least 10- years or more, without reducing or cutting the dividend entirely.
They also all have a positive 10-year dividend growth rate, though as you can see those growth rates vary quite dramatically.
We can also see the number of years of consecutive dividend growth each stock has achieved, and once again there is significant deviation between the highest and lowest performers on this metric.
FTSE 100 stocks with strong dividend track records
| Company | Years of Consecutive Dividend Growth ▼ |
10 Yr Div Growth Rate
|
| London Stock Exchange Group | 14 | 15.38% |
| Hikma Pharmaceuticals | 12 | 14.73% |
| Diploma | 25+ | 13.31% |
| Alliance Witan | 25+ | 10.42% |
| Spirax Group | 24+ | 10.32% |
| Coca Cola HBC AG | 11 | 10.14% |
| DCC | 25+ | 9.65% |
| RELX | 13 | 9.17% |
| Bunzl | 24+ | 7.71% |
| Halma | 25+ | 6.83% |
| Sage Group | 25+ | 5.37% |
| Croda International | 24+ | 5.31% |
| F&C Investment Trust | 24+ | 5.10% |
| British American Tobacco | 24+ | 4.75% |
| BAE Systems | 20 | 4.29% |
| Scottish Mortgage Investment Trust | 25+ | 3.87% |
| Phoenix Group Holdings | 8 | 2.78% |
| Diageo | 25+ | 2.52% |
We could take a variety of approaches to making our selection of the best UK dividend stocks using this data.
For example, we could choose only those stocks which have 25 or more years of continuous dividend growth.
After all, dividend investing is largely about generating income and ideally that income should grow over time, so as to keep pace with or outstrip inflation.
Good examples
A perfect example of that is Alliance Witan, one of the UKs largest investment trusts, the company has more than 25 years of dividend payments under its belt and an impressive 10-year dividend growth rate of +10.42%., Alliance Trust invests in global equities with a focus on long term capital growth and income.
Technical equipment maker Diploma is another stock with a 25 year plus dividend growth record, and it has a 10-year dividend growth rate of +13.31%.
Halma and Sage also fit this criteria through their 10-year dividend growth rates are somewhat lower at +6.83% and +5.37% respectively.
If we loosen our criteria to include stocks with a track record of dividend growth that’s greater than10-years we can choose LSEG, the owner of the UK’s principal equity market.
Though these days it’s seen more as a data focused business that provides services and information to institutional traders and money managers around the world.
We highlighted LSEG’s credentials as a discounted stock, at the end of November. Nevertheless its 10-year dividend growth rate of +15.38% is worth remarking on.
However, the dividend yield of some of these stocks is less impressive
For example, Diploma only yields +1.38% currently and that makes it hard to justify an investment in the stock on income grounds alone, despite its excellent track record.
LSEG yields just a fraction over +1.0%, whilst Alliance Witan yields a more respectable + 2.06%.
Highest Dividend Yielding Stocks in the FTSE 100
Income investors will be looking for more appealing stocks with higher yields and the FTSE 100 does have them, the table below shows some of the highest yielding stocks within the index.
| Company |
Annual Yield
|
| Phoenix Group Holdings | 10.70% |
| M&G | 9.97% |
| Legal & General Group | 8.87% |
| Taylor Wimpey | 8.39% |
| British American Tobacco | 8.11% |
| Rio Tinto | 7.22% |
| Land Securities Group | 7.18% |
| Aviva | 7.04% |
| Schroders | 6.77% |
| British Land | 6.42% |
| HSBC Holdings | 6.21% |
| Londonmetric Property | 6.18% |
| Imperial Brands | 5.95% |
| BT Group | 5.75% |
| WPP | 5.41% |
| Kingfisher | 5.20% |
| Persimmon | 5.16% |
| United Utilities Group | 5.15% |
| Sainsbury (J) | 5.10% |
| Lloyds Banking Group | 5.08% |
| Mondi | 5.00% |
The trade off here is that you may have to accept a much shorter track record, and or lower dividend growth rates, to receive a high dividend yield.
For example insurer Phoenix Group yields +10.70% It does have a record of continuous dividend payments and it has held, or grown its dividend over its lifetime. However, its 10-year dividend growth rate is just +2.78%.
Legal & General which yields +8.87% has track record of continuous dividend payments but it can’t claim or to have always held or grown that dividend and has a 10-year growth rate of 7.73%
Even banking giant HSBC, which yields +6.21% , has a patchy dividend history. It doesn’t have a record of continuous dividend payments. Nor has it always held or grown its dividend and that’s reflected in the bank’s 10 year dividend growth rate of +2.21%.
How to proceed
The best way to invest for income /dividends is to try and strike a balance between dividend stability and yield, and to have a mix of stable reliable dividend payers and growers, alongside a selection of high yielders, and of course, as with any portfolio you should also have diversification at a sector level too.
How can you invest in dividends in the UK?
Dividend investments should be diversified so you don’t have all your eggs in one basket, you should also consider dividend-paying ETFs that track stocks or indices with a large number of dividend-paying components. Dividend income is subject to tax so it may be worth considering using stocks and shares ISA or SIPP provider as tax-efficient wrappers for your dividend investing.
Use the table below to compare some of the best accounts in the UK for dividend investing:
| Stock Broker | Account Fee | Stock Dealing Fee | Customer Reviews | GMG Rating | More Info |
|---|---|---|---|---|---|
 | From £4.99 a month | £3.99 – £5.99 | Visit Broker Capital at risk |
||
 | Shares: £0 Funds: 0.45% | £5.95 | Visit Broker Capital at risk |
||
 | 0.25% (capped at £3.50 pm) | £3.50 – £5 | Visit Broker Capital at risk |
||
 | £0 | £1 (or 0.05%) | Visit Broker Capital at risk |
||
 | €10 per month or 0.12% | 0.10% (min. GBP 8) | Visit Broker Capital at risk |
||
 | £24 per quarter | £3-£8 | Visit Broker* Capital at risk |
What are dividends?
Dividends are the share of a company’s profits that are paid to ordinary shareholders. They are the reward that equity investors receive for taking the most risk within a company’s capital structure.
Dividends are a reward for risk-taking.
Dividends usually come in the form of cash, which is paid to the shareholders on the company’s share register, on a given date. Dividends are typically paid semi-annually or quarterly, though companies may also declare special dividends at other times of the year.
These may occur for example, if a company makes a lucrative disposal and wishes to distribute the profits from that sale to its shareholders.
Why dividend yields are important
When we talk about dividends we often use phrases like dividend yield, the dividend yield is simply a comparative measure, which is calculated by dividing dividends paid by the current share price. Such that a company with a share price of £1.00 paying dividends of 10p per annum has a dividend yield of 10%.
Knowing a company’s dividend yield means we can compare that yield to those of other dividend-paying shares, income-producing securities and asset classes, to make a judgment about valuations and the merits of a potential investment.
Five questions to ask when looking at dividend yields:
- How certain is the dividend stream? Rank the firm’s business model -> High/Med/Low.
- Is the firm profitable? If the firm is making losses, is it temporary?
- Is the whole sector down or just that stock?
- Is the firm borrowing to pay the dividends or it comes from the firm’s free cash flow? Choose the latter.
- Is the stock prices basing? Make sure the technicals look right
How dividends compare to other types of company ownership
Unlike secured bond or preference shareholders, equity investors, the ordinary shareholders in a company, have no claim on the assets of that business. And, in the event of bankruptcy, they are last on the list of unsecured creditors, to receive a payout.
In fact, the ordinary shareholders, or equity investors, in a company have really just bought into the “idea” of the enterprise, its ability to execute a business plan, and the goodwill that it generates in doing so. None of which is tangible, in the way a factory or plant is.
The equity within a business can be thought of as the excess value, over and above the tangible assets, cash and investments, within that business.
Owning income-producing assets such as dividend-paying shares is seen by many as being the cornerstone of wealth creation..
Dividend-paying ETFs
Alternatively, you can buy into an ETF that tracks the FTSE 100, such as ISF, the iShares Core FTSE 100 UCITS ETF.
The fund aims to mirror the performance of the FTSE 100 index by owning a weighted basket of the stocks that comprise the UK Equity benchmark. By virtue of owning this basket of stocks, the ETF collects their dividends, which it distributes to investors in the fund every quarter.
Note though, that income investors need to ensure they buy the distribution version of ISF and not the dollar-hedged accumulation variant of the fund.
As a dividend investor you needn’t confine yourself to the FTSE 100 though. There are specialist dividend-focused ETFs, such as the US Bank State Street manages the SPDR S&P UK Dividend Aristocrats ETF, which invests in 39 UK companies with a long-term history of stable and growing dividends.
Nor do you need to limit your investment horizons to UK shores, fund manager Vanguard offers the Vanguard FTSE All-World High Dividend Yield UCITS ETF which aims to create well-diversified investment income, by holding a large basket of globally focused dividend-paying stocks.
What are the pros of dividend investing
The pros of dividend investing are essentially two-fold:
Firstly dividend investing can generate income in excess of what can currently be achieved through savings accounts, bank deposits and even the yields on 10-year govt bonds.
Which is good news for those looking to generate a cash return from their investments.
The temptation might be to invest in just a few high-quality, dividend-paying stocks, though prudence and risk management norms suggest that one should diversify a dividend or income portfolio, in the same way, that you would, if you aiming to generate capital growth.
Dividend investing can, however, also be used to generate or enhance capital growth through the reinvestment of dividends back into a portfolio.
If you take our example from earlier of a stock priced at £1.00 per share, paying a 10p, or 10.0% dividend per annum. You can see that after 10 years of dividend payments, at that level, the original investment would effectively have been paid for, by the income generated from it.
However, if that income was re-invested back into the stock over that time frame, you could, in theory, have also doubled you holding in it.
In fact, it’s possible that you holding would be even larger because you would have also benefited from compounding.
Imagine you own 100 shares in this company, in year two your original holding of 100 shares in the compnay would have grown to 110 shares, after reinvestment of the dividends into the stock, and you now receive dividends on the 110 shares in year three and so on.
Over the longer-term reinvestment of dividends and the compounding effects that it creates can generate significant outperformance.
For example, research by Hartford Funds finds that between 1960 and 2022 as much as 84% of the total return of the S&P 500 index, was generated by dividend reinvestment, rather than price appreciation.
Meaning that a notional $10,000 invested in the index in 1960, without dividend reinvestment would have grown to $795,000 by 2022.
Whilst the same $10,000 invested in the S&P 500, but this time with dividends reinvested, would have grown to be worth $4.95 million.
Where is the downside of investing in dividends
One of the main downsides to dividend investing can be fluctuations in or cessation of dividend payments.
Dividends are discretionary, not mandatory, and companies can choose not to pay them, and indeed some never will. For example, growth companies which are focused on expanding their businesses, rather than rewarding shareholders, don’t typically pay dividends at all.
The economy and business ecosystems are cyclical, that is they move in waves or cycles from good times to bad and back again. As the fortunes of companies move up and down within those cycles, their ability to pay and maintain dividends can vary significantly.
Dividend payments are largely a function of profitability, and profits that are in excess of costs. If companies are not making profits and accruing cash, then they are less able or willing to make distributions to their shareholders.
This can be particularly true in capital-intensive industries such as house building and oil and gas production. Both of these require significant investment and working capital, and both industries are highly sensitive to changes in the macroeconomic background, and factors such as demand and interest rates.
During a downturn, companies may choose to pay dividends from reserves of cash they have on hand, but that can only ever really be a temporary solution.
An obvious example of pitfalls of dividend investing and a lack of diversification can be found in the recent history of Lloyds Bank.
Lloyds had a history of stable earnings and a progressive dividend policy throughout the 1990s and early 2000s and it was a firm favourite among dividend and income investors at that time.
That was until the Global Financial Crisis of 2008. In the midst of this, Lloyds acquired its smaller rival HBOS, which turned out to be a financial black hole.
Lloyds would pay an interim dividend of 11.4p pence that summer, but it would be six years before it returned to the dividend list, with a final dividend payment, in 2014, of 0.75p per share.
Lloyds shareholders not only went without dividends for years, but they also lost the majority of their investment as the Bank’s share price collapsed.
A high dividend yield can often make a stock look attractive, but if it’s way out of line with its peer group, at a sector and index level, then that may be a red flag. And could signal that the market doesn’t believe that the dividend is sustainable.
Dividend investors can use metrics such as dividend cover and the dividend payout ratio to examine whether the dividend is viable.
Dividend cover is a measure of how many times a company could pay its proposed dividend, out of its existing reserves. Whilst the payout ratio shows what proportion of its net income, a company pays away in dividends.
The higher the dividend cover and the lower the payout ratio, then the more sustainable a dividend is thought to be.
Three Principles To Follow For Dividend Yield Investing
- Diversify – Buy a portfolio of stocks in different sectors/market capitalisation/earnings geography. This lowers the risk.
- Best-In-Class – Do not just look at headline dividend yields. Find the best stock in that sector that offers a good yield. They may pay less but could be financially stronger. During the 2008 crisis, Warren Buffett did not buy indiscriminately. He bought only the best (Goldman, GE, etc)
- Timing – Buy when the market is very fearful. This way, you are paying less to own the company.
In recent times with the rise of ESG (Ethical Social and Governance), some dividend investors have found themselves conflicted because many large dividend-paying stocks are in industries such as petrochemicals, mining, tobacco and defence. Which are not seen as being ethically or environmentally sensitive and that’s a circle that may become increasingly harder to square.
With over 35 years of finance experience, Darren is a highly respected and knowledgeable industry expert. With an extensive career covering trading, sales, analytics and research, he has a vast knowledge covering every aspect of the financial markets.
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In addition to the financial analysis and commentary he provides as an editor at GoodMoneyGuide.com, his work has been featured in publications including Fool.co.uk.
As well as extensive experience of writing financial commentary, he previously worked as a Market Research & Client Relationships Manager at Admiral Markets UK Ltd, before providing expert insights as a market analyst at Pepperstone.
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