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Dividend stocks are a useful way to earn an income when investing and get your share of company profits. Typically, companies that pay dividends aim for stability, so they tend to be blue-chip stocks as well, but not always.
Buying dividend stocks for your investment portfolio could give you some extra diversification and a chance to benefit from compounding. Here’s how to invest in dividend stocks, what to look at when comparing shares and what to consider first.
Taken from the top constituents in the S&P UK Dividend Aristocrats Index.
Stock | Icon | Annual dividend yield | 5-year performance (to Feb. '25) | Link |
---|---|---|---|---|
Legal & General Group PLC (LGEN) | ![]() |
8.75% | 12.30% | Invest Capital at risk |
Taylor Wimpey PLC (TW) | ![]() |
7.99% | -18.09% | Invest Capital at risk |
Schroders PLC (SDR) | ![]() |
6.08% | -21.09% | Invest Capital at risk |
LondonMetric Property Plc (LMP) | ![]() |
5.59% | 1.21% | Invest Capital at risk |
IG Group Holdings PLC (IGG) | ![]() |
4.31% | 101.54% | Invest Capital at risk |
Drax Group PLC (DRX) | ![]() |
3.91% | 166.54% | Invest Capital at risk |
NatWest Group PLC (NWG) | ![]() |
4.03% | 146.35% | Invest Capital at risk |
National Grid PLC (NG) | ![]() |
5.54% | 39.87% | Invest Capital at risk |
Games Workshop Group PLC (GAW) | ![]() |
2.8% | 136.95% | Invest Capital at risk |
Taken from the top constituents in the S&P Dividend Aristocrats index.
Stock | Icon | Annual dividend yield | 5-year performance (to Feb. '25) | Link |
---|---|---|---|---|
Franklin Resources (BEN) | ![]() |
6.35% | 2.21% | Invest Capital at risk |
International Business Machines (IBM) | ![]() |
2.92% | 124.20% | Invest Capital at risk |
Automatic Data Processing (ADP) | ![]() |
2.06% | 91.27% | Invest Capital at risk |
Emerson Electric Company (EMR) | ![]() |
1.65% | 90.09% | Invest Capital at risk |
Walmart (WMT) | ![]() |
0.99% | 184.51% | Invest Capital at risk |
Cardinal Health (CAH) | ![]() |
1.58% | 153.54% | Invest Capital at risk |
Dover Corporation (DOV) | ![]() |
1.04% | 87.46% | Invest Capital at risk |
Abbott Laboratories (ABT) | ![]() |
2.02% | 64.15% | Invest Capital at risk |
Roper Technologies (ROP) | ![]() |
0.61% | 55.18% | Invest Capital at risk |
S&P Global (SPGI) | ![]() |
0.75% | 81.60% | Invest Capital at risk |
These dividend growth stocks are taken from the top large-cap US equities in the Russell 1000 Dividend Growth Index. To make it onto this index, the companies must have successfully increased their dividend payments over a 10-year period. The stocks are also screened for liquidity and dividend status.
Stock | Icon | Annual dividend yield | 5-year performance (to Feb. '25) | Link |
---|---|---|---|---|
Pfizer (PFE) | ![]() |
6.49% | -8.56% | Invest Capital at risk |
UGI Corporation (UGI) | ![]() |
6.05% | -7.01% | Invest Capital at risk |
Target Corporation (TGT) | ![]() |
2.87% | 31.29% | Invest Capital at risk |
Globe Life (GL) | ![]() |
0.78% | 18.39% | Invest Capital at risk |
Dick’s Sporting Goods (DKS) | ![]() |
2.04% | 538.87% | Invest Capital at risk |
Kroger Company (KR) | ![]() |
2.14% | 211.06% | Invest Capital at risk |
Apple (AAPL) | ![]() |
0.42% | 199.00% | Invest Capital at risk |
Becton Dickinson and Company (BDX) | ![]() |
1.75% | 9.39% | Invest Capital at risk |
Visa Class A (V) | ![]() |
0.69% | 78.56% | Invest Capital at risk |
West Pharmaceutical Services (WST) | ![]() |
0.25% | 113.04% | Invest Capital at risk |
You can check with your share dealing provider when to expect dividends from the companies you have invested in. They may show this information with the other company financials or have a dividend calendar.
The size of the dividend you will receive is determined by the company’s performance and the number of shares you have. Dividends are usually calculated as a percentage of a company’s profit (earnings), known as the “dividend payout ratio”.
The dividend payment you receive is calculated using the number of shares you own. For example, if you own 5,000 shares in Company XYZ, which is paying a dividend of 5 pence per share, you will receive a payment of £250.
Dividend yield is another measure that compares the dividend payout against the current share price as a percentage. It works out exactly the same in the case of fractional shares (which are smaller pieces of whole shares).
A company’s board of directors will decide when to pay a dividend and how much to pay. While they are usually issued as cash payments, dividends can also be offered in other forms, for example, as additional shares in the company.
Dividends can only be paid from a company’s profits for the current year or profits it has retained from previous financial years.
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 by 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.
This is simply a name used for a company that pays dividends. If an investor says they dedicate some of their portfolio to dividend stocks, then they’re generally investing in companies that tend to pay out some of their profits to their shareholders as income.
When you own shares in a company, you own a piece of the business. Companies don’t have to pay dividends, as they can choose to reinvest the money into the business for growth. But ones that do so regularly will become known as dividend stocks and tend to be popular with investors looking for income.
It’s difficult to determine the safest dividend stocks because, at the end of the day, all investments carry a certain level of risk. However there is often an overlooked area of dividends, which is the AIC “dividend heroes” list. This is a collection of investment trusts that have been paying (and increasing) their dividends for at least 20 years, a few have been doing so for over 50 years!
Part of the reason investment trusts can be the safest option for dividends, even in times of trouble, is because their structure allows them to withold up to 15% of profits and then pay them out another time for smoother dividends (something individual dividend stocks don’t do).
With an investment trust, you also get a diversified portfolio of holdings with a single investment and expert management. You can take a look at the safest dividend investment trusts from the AIC “dividend heroes” list, increasing dividends for over 20 years in a row, over on our dividend ETFs guide.
Dividend stocks can make money for shareholders in 2 ways:
Dividend payments are usually made every quarter (4 times a year), although some shares pay out just once or twice per year. Of course, dividend payment amounts and schedules can vary. And dividend payments are never guaranteed.
It’s also worth noting that some companies do not pay dividends at all. For example, a new company might plough all its profit back into the business to fuel growth.
You need to own the share before the ex-dividend date to receive the dividend. It’s worth knowing the process and key dates:
"When you’re looking at dividend stocks, you’ll notice that one of the most-highlighted metrics is the dividend yield. This is usually shown as a percentage and the basic calculation is:
Dividend amount (in pounds, pence or dollars, for example) divided by the current share price. One thing to watch out for is that a higher dividend yield may look attractive but this can sometimes happen because the underlying share price is falling.
When a situation like this takes hold of your investment, you could end up losing more money in the depreciation of the shares than you make with a higher percentage dividend yield."
There are a number of factors to consider when comparing which dividend stocks (dividend-paying shares) to buy:
In the UK, you get a dividend allowance each tax year. In the current tax year, it’s £500. This means you don’t need to pay tax on any dividend income up to that amount.
If you earn more than £500 from dividend payouts then how much dividend 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 £500 allowance – if your dividend profit takes you into a new income tax band, you’ll need to consider this.
Fill in the fields above to calculate your dividend tax.
Here are some of the main advantages and disadvantages of investing in dividend stocks:
One issue to be wary of is investing in a company based solely on its history of dividend payments. Just because a company pays a regular dividend doesn’t mean it is a safe and stable investment, so do plenty of research before handing over your money.
It’s also vital that you research the whole company and it’s financial performance, don’t get stuck in the weeds of all the dividend data. If the stock drops in value, that negatvitity could outwiegh the benefit of getting a dividen payment.
Some companies offer investors a dividend reinvestment plan (DRIP). If you opt in, this allows you to use your dividends to automatically buy more shares, which can help avoid additional brokerage fees.
A downside of signing up for a DRIP is that you don’t receive a traditional dividend payout in cash, so you 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 dividend payment date. Also, you sometimes have to sign up directly with a company (rather than a brokerage).
Investing in companies that pay dividends can be a smart move. But, finding the best dividend stocks for your portfolio isn’t an easy task. Payments aren’t guaranteed, but they can be an excellent wealth-building tool. Keep your eyes peeled for any possible taxes, using a stocks and shares ISA is the best way to avoid most taxes when investing in dividend stocks.
Ideally, look for a strong past track record but also check the current financial health of a company or investment to ensure it can keep paying dividends. Regular income through dividend stocks is an excellent way to provide your portfolio with a level of stability, and help with compound growth. Keep in mind that dividends aren’t guaranteed and be wary of becoming greedy and chasing high dividend yields.
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