How to invest in dividend stocks in the UK

Dividend investing is a popular way of making a regular income. To buy dividend stocks in the UK you just need to buy shares in a dividend-paying company.

Updated

Fact checked
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.

With world stock markets in a state of flux during the current coronavirus pandemic, many would-be investors are considering a first-time foray into buying company shares. While we don’t have a crystal ball to predict future stock market performance, our guide can explain how to invest in dividend stocks.

How to buy in dividend stocks in the UK

1. Choose an online share-dealing platform. If you’re a beginner, our table below can help you choose.
2. Open your account. You’ll have to provide personal information such as your ID, bank details and national insurance number.
3. Confirm your payment details. You’ll need to fund your trading account with a bank transfer, debit card or credit card.
4. Research the stock that you want to buy. Do some wider research on the company that you’re interested in buying stock in, and also check out its past share performance using your new account.
5. Search the platform for the stock code of your chosen shares. You’ll need this to purchase the shares.
6. Buy your shares through the online platform. It’s that simple.

Compare share-dealing platforms to buy dividend stocks

Table: sorted by promoted deals first
Data indicated here is updated regularly
Name Product Price per trade Frequent trader rate Platform fees Brand description
Fineco
£2.95
£2.95
Zero platform fee
Your first 50 trades are free with Fineco, until 31/12/2020. T&Cs apply.
Fineco Bank is good for share traders and investors looking for a complete platform and wide offer. Capital at risk.
IG
0% commission on US shares, and £3 on UK shares
From £5
£0 - £24 per quarter
IG is good for experienced traders, and offers learning resources for beginners, all with wide access to shares, ETFs and funds. Capital at risk.
eToro Free Stocks
0% commission, no markup, no ticket fee, no management fee
N/A
Withdrawal fee & GDP to USD deposit conversion
Capital at risk. 0% commission but other fees may apply.
Hargreaves Lansdown Fund and Share Account
£11.95
£5.95
No fees
Cashback offer: Take control of your money and transfer investments to HL – get cashback as a thank you. Terms apply.
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. Capital at risk.
Interactive Investor
From £7.99 on the Investor Service Plan
From £7.99 on the Investor Service Plan
No transfer fees or exit fees. £9.99 a month on the Investor Service Plan
Open an ISA, Trading Account or SIPP you will get £100 of free trades to buy or sell any investment (new customers only).
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
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Data indicated here is updated regularly
Name Product Minimum deposit Maximum annual fee Price per trade Brand description
Moneyfarm stocks and shares ISA
£1500
0.75%
£0
Hargreaves Lansdown stocks and shares ISA
£100
0.45%
£11.95
Hargreaves Lansdown is the UK's biggest wealth manager. It's got everything you'll need, from beginners to experienced investors. Capital at risk.
Interactive Investor stocks and shares ISA
Any lump sum or £25 a month
£119.88
£7.99
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
Saxo Markets stocks and shares ISA
No minimum deposit requirement
0.12%
£8.00
Saxo Markets offers a wide access to a range of stocks, ETFs and funds. Capital at risk.
AJ Bell stocks and shares ISA
£500
0.25%
£9.95
AJ Bell is a good all-rounder for people who to choose between shares, funds, ISAs and pensions. Capital at risk.
Fidelity stocks and shares ISA
£1000 or a regular savings plan from £50
0.35%
£10.00
Fidelity is another good all-rounder, offering a good package at a decent price. Not suited for trading shares. Capital at risk.
Nutmeg stocks and shares ISA
£100
0.75%
£0
Nutmeg offers three types of portfolios. Choose the one that goes with your investment style. Capital at risk.
Legal & General stocks and shares ISA
Legal & General stocks and shares ISA
£100 or £20 a month
0.61%
N/A
Legal & General is a big financial services company which offers insurance, lifetime mortgage, pensions and stocks and shares ISAs. Capital at risk.
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Data indicated here is updated regularly
Name Product Minimum investment Choose from Annual fee Brand description
Moneyfarm Pension
£1,500 (initial investment)
7 funds
0.35%-0.75%
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
AJ Bell Pension
£1,000
Over 2,000 funds
0.05-0.25%
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
PensionBee Pension
No minimum
7 funds
0.5% - 0.95%
Pension Bee is a newbie in the pension market. It helps consolidate your pension plans into one place. Capital at risk.
Hargreaves Lansdown Pension
£100 or £25 a month
2,500 funds
0-0.45%
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
Interactive Investor Pension
Any lump sum or £25 a month
Over 3,000 funds
£10/month
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
Saxo Markets Pension
Saxo Markets Pension
£10
Over 11,000 funds
No annual fee
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
Moneybox Pension
£1
3 funds
0.15% - 0.45% charged monthly
Manage your money with an easy-to-use Moneybox app. Capital at risk.
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All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.

Best UK dividend stocks (top 10)

Below is a list of the top 10 stocks in the FTSE 250, ordered by their dividend yields. We give more detail into the companies underneath.

Wait, what's a dividend yield?

Dividend yield is the amount that a company pays in dividends relative to the market value of one share. It’s worked out by dividing the dividend per share with the share price and multiplying it by 100.

This is a nice way to compare the dividends that companies pay, but, as stock prices change all the time, this does too.

Stock codeCompany nameAnnual yield
HMSOHammerson14.17%
TUITui AG13.14%
CCLCarnival11.82%
GOGGo-Ahead Group10.57
CINECineworld Group10.43%
VTYVistry Group8.65%
AAFAirtel Africa7.42%
BCPTBMO Commercial Property Trust7.17%
EZJEasyJet7.07%
JUPJupiter Fund Management6.98%

Hammerson

Hammerson plc is a real estate investment trust. It owns, manages and develops retail destinations in Europe. It owns and operates destinations such as Brent Cross in London, Dundrum Town Centre in Dublin and Italie Deux in Paris.

Tui

You probably know about Tui – it’s one of the top travel services in the UK. It owns travel agencies, hotels, airlines, cruise ships and retail stores.

Carnival

Carnival is a British American cruise operator. It’s made up of nine cruise line brands and one cruise experience brand. Some of these brands include P&O Cruises, Princess Cruises and Costa Cruises.

Go-Ahead Group

Go-Ahead is a leading public transport company. It’s behind the London buses, Govia Thameslink Railway and Southeastern railway. You could travel across almost the entire UK on exclusively Go Ahead services, if you wanted to.

Cineworld

Cineworld is one of the leading multiplex cinemas in the world. It has over 9,500 screens across 790 cities in 11 countries, so it’s certainly made its mark on the world. It also owns the unusual record of the tallest cinema in the world and the largest cinema in Ireland.

Vistry Group

Vistry Group is a home construction company. It is one of the top five housebuilders in the UK by volume. It works with housing associations, local authorities and government agencies to provide affordable housing.

Airtel Africa

Airtel Africa is a leading telecommunications company. It has presence in 14 countries in Africa, mainly in East Africa, Central Africa and West Africa. It offers mobile voice and data services and mobile money services nationally and internationally.

BMO Commercial Property Trust

BMO Commercial Property Trust gives investors the chance to get exposure to UK commercial property. One of its aims is to provide its shareholders with income and pays its dividends monthly.

EasyJet

EasyJet is another airline that you’ll be familiar with. It’s well known for its low prices and its unmissable vibrant orange brand colour. It’s a popular choice with those looking to jet off on a budget. It’s part of the EasyGroup, which has a car rental company (EasyCar), a pizza delivery company (EasyPizza) and a dog walking and pet sitting service (EasyDogwalker), among many EasyOthers.

Jupiter Fund Management

Jupiter is an active fund manager which aims to help its clients achieve their investment goals. It manages equity and bond investments, particularly in markets in the UK, Europe and Asia.

What are dividend stocks?

When you buy a number of shares in a company (also referred to as having “stock” in that firm), you’re effectively buying a piece of the business, which means you’re a part-owner. As a shareholder you’re then entitled to a share of that company’s earnings, which comes in the form of dividends.

This means that dividend stocks (also known as dividend-paying shares) are ones that make regular payments to the investors who have bought them.

Dividend stocks can make money for shareholders in two ways: by providing a predictable source of income from regular dividend payments, and by going up in value over time (called capital appreciation).

Dividend payments are usually made on a quarterly basis (four times a year), although some shares pay out just once or twice per year. Of course, dividend payment amounts could start to vary over time depending on the financial performance of the company that you’ve bought stock in.

It’s also worth noting that some company shares do not pay dividends at all. For example, if it’s a relatively new company and all profits are being ploughed back into the business to promote growth (and ultimately, to build up the share price valuation and the prospect of paying dividends in the future).

Why should I buy dividend stocks?

Pros

  • Dividend payouts provide a regular investment income.
  • You can also sell the shares on for a profit if they rise in value over time.

Cons

  • If the company you own shares in hits hard times, it may reduce the dividend payout to investors.
  • The value of shares can decrease as well as increase.
  • Tax. As dividends form part of your income, you may need to pay tax on any dividend payments you receive.
  • No guarantee. You can’t rely solely on dividends, as there’s no guarantee that companies will pay out.

How to compare dividend stocks

There are a number of factors to consider when comparing which dividend stocks (dividend-paying shares) to buy:

  • Dividend yield. This is the total value of dividend payouts over one year, represented as a percentage of the share price. For example, if a company pays out £1 per share in annualised dividends, and the stock price is £10 per share, then that is a dividend yield of 10%. A high dividend yield is a good sign for investors, but be mindful to check that the company is in a healthy enough position to sustain that high figure in future. Also, if you are a novice investor, beware of falling into the “dividend yield trap”. This is where a very high dividend yield is not as good a prospect as it seems, because the % yield has hit an unusual high due to a falling stock price, which might signal troubled times at the company.
  • Payout ratio. This is the dividend expressed as a percentage of a company’s net income. If a company earns £2 per share in net income and pays a £1 share dividend, its payout ratio is 50%. A lower payout ratio indicates that the dividend is more sustainable.
  • Total return. This is the overall performance of a stock, combining any rise or fall in share price with the dividend yield. For instance, if a share price rises by 6% over one year, and the share has an annual dividend yield of 5%, its total return is 11%.
  • Earnings per share (EPS). This figure is a company’s profit per share, so is calculated by taking a firm’s quarterly or annual income and dividing it by the number of shares that exist in that company.
  • Price-to earnings (P/E) ratio. This is calculated by dividing a company’s current share price by its EPS. A higher ratio suggests that investors expect higher growth from the company compared to the overall market.

Paying tax on dividends in the UK

In the UK, individuals get a dividend allowance of £2,000 each financial year, which means you don’t need to pay tax on any dividend income up to that amount.

If you earn more than £2,000 from dividend payouts then how much tax you’re liable for depends on whether you’re a basic, higher or additional rate income tax payer in your normal day-to-day job.

These are the tax rates payable on dividends over the £2,000 allowance:

  • Basic rate tax payer – 7.5%
  • Higher rate tax payer – 32.5%
  • Additional rate tax payer – 38.1%

How does a dividend reinvestment plan work?

Some companies offer investors a dividend reinvestment plan (known as a DRP). If you opt in, this allows you to use your dividends to buy more shares in that company, instead of receiving the dividend payment in cash.

One of the main advantages of doing this is that you can buy extra shares without paying any more brokerage fees to your share-dealing platform. It’s also a good way to increase your holdings in a company over time with little or no active effort on your part!

A downside of signing up to a DRP is that you don’t receive a traditional dividend payout in cash, so won’t have that as a form of regular income. You also don’t get to choose at what share price you buy the additional shares – they’re automatically purchased on your behalf on the date of the dividend payment.

Are there any risks?

One issue to be wary of is investing in a company based solely on its history of dividend payments. Just because a company has a high dividend yield doesn’t mean it is a safe and stable investment, so do plenty of research before handing over your money.

Some companies will also offer dividends in the form of shares (as a DRP, explained above), which can sometimes seem like an unattractive option for investors looking for an instant cash return. However, these dividend reinvestment plans can be a great way for you to invest further and gain a bigger share of a company, so consider the merits of reinvesting before making a decision.

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