How to invest in dividend stocks in the UK

Find out how to buy dividend stocks and check out some of the best dividend stocks from around the world with high yields for dividend-paying stocks across various sectors..

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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.

Key takeaways

  • The size of a dividend is based on company performance and the number of shares you have.
  • You need to be a shareholder on the “ex-dividend date” to be eligible to receive a dividend.
  • We’ve listed some of the best dividend-paying stocks from the UK and US.

Top dividend stocks

Best FTSE 100 dividend stocks

Taken from the top constituents in the S&P UK Dividend Aristocrats Index.

Stock Annual dividend yield 5-year performance (to Feb. '25) Link
Legal & General Group PLC (LGEN) Legal & General Group PLC icon 8.75% 12.30% Invest Capital at risk
Taylor Wimpey PLC (TW) Taylor Wimpey PLC icon 7.99% -18.09% Invest Capital at risk
Schroders PLC (SDR) Schroders PLC icon 6.08% -21.09% Invest Capital at risk
LondonMetric Property Plc (LMP) LondonMetric Property Plc icon 5.59% 1.21% Invest Capital at risk
IG Group Holdings PLC (IGG) IG Group Holdings PLC icon 4.31% 101.54% Invest Capital at risk
Drax Group PLC (DRX) Drax Group PLC icon 3.91% 166.54% Invest Capital at risk
NatWest Group PLC (NWG) NatWest Group PLC icon 4.03% 146.35% Invest Capital at risk
National Grid PLC (NG) National Grid PLC icon 5.54% 39.87% Invest Capital at risk
Games Workshop Group PLC (GAW) Games Workshop Group PLC icon 2.8% 136.95% Invest Capital at risk

Best S&P 500 dividend stocks

Taken from the top constituents in the S&P Dividend Aristocrats index.

Stock Annual dividend yield 5-year performance (to Feb. '25) Link
Franklin Resources (BEN) Franklin Resources icon 6.35% 2.21% Invest Capital at risk
International Business Machines (IBM) International Business Machines icon 2.92% 124.20% Invest Capital at risk
Automatic Data Processing (ADP) Automatic Data Processing icon 2.06% 91.27% Invest Capital at risk
Emerson Electric Company (EMR) Emerson Electric Company icon 1.65% 90.09% Invest Capital at risk
Walmart (WMT) Walmart icon 0.99% 184.51% Invest Capital at risk
Cardinal Health (CAH) Cardinal Health icon 1.58% 153.54% Invest Capital at risk
Dover Corporation (DOV) Dover Corporation icon 1.04% 87.46% Invest Capital at risk
Abbott Laboratories (ABT) Abbott Laboratories icon 2.02% 64.15% Invest Capital at risk
Roper Technologies (ROP) Roper Technologies icon 0.61% 55.18% Invest Capital at risk
S&P Global (SPGI) S&P Global icon 0.75% 81.60% Invest Capital at risk

Best growth dividend stocks

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 Annual dividend yield 5-year performance (to Feb. '25) Link
Pfizer (PFE) Pfizer icon 6.49% -8.56% Invest Capital at risk
UGI Corporation (UGI) UGI Corporation icon 6.05% -7.01% Invest Capital at risk
Target Corporation (TGT) Target Corporation icon 2.87% 31.29% Invest Capital at risk
Globe Life (GL) Globe Life icon 0.78% 18.39% Invest Capital at risk
Dick’s Sporting Goods (DKS) Dick’s Sporting Goods icon 2.04% 538.87% Invest Capital at risk
Kroger Company (KR) Kroger Company icon 2.14% 211.06% Invest Capital at risk
Apple (AAPL) Apple icon 0.42% 199.00% Invest Capital at risk
Becton Dickinson and Company (BDX) Becton Dickinson and Company icon 1.75% 9.39% Invest Capital at risk
Visa Class A (V) Visa Class A icon 0.69% 78.56% Invest Capital at risk
West Pharmaceutical Services (WST) West Pharmaceutical Services icon 0.25% 113.04% Invest Capital at risk

How to buy dividend stocks in the UK

  1. Choose an online share dealing platform. There are plenty of great providers out there. It’s worth finding a share dealing account that suits your needs. Our picks 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 (NI) number.
  3. Deposit funds. You’ll need to fund your trading account using a bank transfer, debit card or credit card.
  4. Research the dividend stock you want to buy. Do some wider research on the company you’re interested in and search the platform using the name or stock ticker.
  5. Buy your dividend shares. Set a buy order for your desired amount of shares in a company or a dividend ETF. It’s that simple.

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.

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How do dividends work?

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.

Wait, what's 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 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.

What are dividend stocks?

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.

Safest dividend stocks

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.

How you can make money with dividend stocks

Dividend stocks can make money for shareholders in 2 ways:

  1. Income. Providing a (relatively) predictable source of income from regular dividend payments.
  2. Growth. By going up in value over time (called capital appreciation).

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.

How long do you have to own a stock to get the dividend?

You need to own the share before the ex-dividend date to receive the dividend. It’s worth knowing the process and key dates:

  • Declaration date. This is the date that a dividend is announced – this is the point at which investors spring into action to decide whether to invest. This is also when you’ll find out the following dates.
  • Ex-dividend date. This is the day after the final date at which you need to buy a stock to receive the dividend payment. Buying a stock on the ex-dividend date would not entitle you to the upcoming dividend.
  • Record date. This is usually one day after the ex-dividend date and is when a company pulls together a list of the shareholders that owned the stock on the day before the ex-dividend date – these are the shareholders that will get a dividend.
  • Payment date. This is the day the dividend is paid.
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Our expert says: How are dividend yields calculated?

"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."

Deputy editor

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 the 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 it 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.

Are dividends taxed?

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.

  • If your total income is under £12,570: 0%
  • If you are a basic rate taxpayer: 8.75%
  • If you are a higher rate taxpayer: 33.75%
  • if you are an additional rate taxpayer: 39.35%

How dividend tax works

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Pros and cons of buying dividend stocks

Here are some of the main advantages and disadvantages of investing in dividend stocks:

Pros

  • Payouts from the best dividend stocks can provide a regular source of income
  • Some high dividend stocks have been paying income for decades
  • Stocks that pay dividends tend to be fairly safe and stable
  • Dividend-paying stocks can provide a useful source of passive income
  • You don’t pay UK tax if you hold these investments in a stocks and shares ISA

Cons

  • Companies can reduce dividend payouts on short notice
  • The underlying share price may still fall
  • You may need to pay tax on dividends if you don’t use an ISA
  • There’s no guarantee companies will continue to pay a dividend
  • Some dividend stocks see little share price growth

Are there any risks of 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.

How does a dividend reinvestment plan work?

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).

Bottom line

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.

Frequently asked questions

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To make sure you get accurate and helpful information, this guide has been reviewed by Mark Tovey, a member of Finder's Editorial Review Board.
George Sweeney, DipFA's headshot
Deputy editor

George is a deputy editor at Finder. He has previously written for The Motley Fool UK, Nasdaq, Freetrade, Investing in the Web, MoneyMagpie, Online Mortgage Advisor, Wealth, and Compare Forex Brokers. He's focused on making personal finance and investing engaging for everyone. To do this he draws from previous work and his Level 4 Diploma for Financial Advisers (DipFA), sharing what he’s learnt. When he’s not geeking out about money, you’ll find him playing sports and staying active. See full bio

George's expertise
George has written 197 Finder guides across topics including:
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