- Investors opt for dividend-paying stocks as those with the highest yield offer the best returns.
- Public-listed companies offering regular dividends to their shareholders are known as dividend stocks.
- The stock of the chosen company should have a dividend payout ratio of at least 50 per cent.
Public-listed companies offering regular dividends to their shareholders are known as dividend stocks. These companies are generally established ones with a fair record of disbursing a part of their earnings to the shareholders.
Income investors usually look for dividend-paying stocks as those with the highest yield offer the best returns. Let us try to know more about dividend stocks.
What to keep in mind before choosing?
There are some common rules that one can keep in mind while choosing dividend stocks. The stock of the chosen company should have a dividend pay out ratio of at least 50 per cent, and the yield should at least be in the range of 4 to 6 per cent.
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The track record of the company with respect to repaying debts and giving dividends should be clean. One should also study a company’s profitability and other financial parameters while choosing a dividend stock.
How to invest in dividend stocks in the UK?
Investing in dividend stocks can begin with as small an amount as £3 as commission charges for certain platforms. Once an account is opened, an investor can have access to as many as 12,000 such stocks. After choosing the shares, they can be bought through the share dealing account. One can also trade in it, meaning they would not hold the underlying asset but can bet on either downward or upward movement of the prices of the shares.
Some of the best dividend stocks
M&G – dividend yield 7.43% (LON:MNG)
The asset manager, which was earlier owned by Prudential, had an IPO in 2019. Unlike other sectors, the asset management and savings sector have a relatively stable revenue stream because they charge a fee on assets that they administer. Though there is little chance that dividends would be reduced in future, the chance of an increase is capped.
Direct Line Insurance Group – dividend yield 7.49% (LON: DLG)
FTSE 250 insurance company is a reputed home and auto insurer. The company has been investing in various new technologies in the last few years to improve its underwriting services. It has also been expanding the business insurance segment, and its sales shot up 16.1 per cent in the first quarter this year.
Imperial Brands – dividend yield 10.6% (LON: IMB)
The UK-based tobacco and cigarette company is listed on the exchange under the IMB ticker. It pays quarterly dividends, and its 31 March 2021 payout was worth 48 pence each share. It was founded in 1901, and it is the owner of popular brands like JPS, Golden Virginia, and RizLa.
BP – dividend yield 6.14% (LON: BP)
BP is a multinational oil and gas firm that was earlier known as the British Petroleum Company. It is one of those companies that offer comparatively high dividend yield making it a hot stock for income investors. Globally, it is the sixth-biggest energy firm by market capitalisation and is one of the most popular energy stocks for trading.
Evraz – dividend yield 5.78% (LON: EVR)
Evraz is a steel mining and manufacturing company with headquarter in London. It has key assets in North America and Russia and has selling exposure in more than 70 nations. The shares have a market capitalisation of £9,306.44 million.