When it comes to investing in the stock market, dividends aren’t a given.
That becomes especially obvious during stock market downturns or recessions. And it can be alarming for investors who rely on generating income from their investments.
Although dividends can be a great boost for your investment strategy, they shouldn’t be relied on altogether, because they’re never guaranteed. If you’re just looking for the highest dividend stocks, that can end up guiding you down a bumpy path. To understand why, let's look first at what exactly a dividend yield tells us.
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If a firm opts to pay a 5p dividend and currently has a share price of 100p, its yield is 5%.
But if that firm’s share price drops to 50p, that 5p dividend now becomes 10%.
On the surface, this can look like a good thing. Usually, the bigger the yield, the bigger the payout.
The trick here is that the stock had to fall by half its value for the dividend yield to shoot up. So, the value of your share had to decline in order for you to get that yield. If the stock falls by 50% it probably means that there are problems or challenges facing the company. That could mean that the company will have to stop paying its dividend too. So, high dividend yields can be a signal for problems elsewhere in the business.
That’s just one reason why it’s hard to determine the best UK dividend-paying stocks.
Because even if a firm that is struggling decides to stretch itself to pay that dividend, it might not be the best option for shareholders in the end. Will it be able to pay a consistent dividend next year or is it simply kicking the problem down the road?
A good investor will always look beyond the headline yield to determine if the dividend is sustainable over the long term. It’s important to consider the big picture, not just a high dividend yield, when selecting investments for your diversified portfolio.
With that in mind, here are the current highest yielding shares on London's top index, the UK 100, as of 5 March 2025 according to dividenddata.co.uk. We have indicated with an asterisk (*) where any of the companies made a dividend cut to the most recent dividend, or stated the next dividend will be cut.
Phoenix Group Holdings (PHNX) is a UK-based life insurance and pension consolidator. Meaning, it doesn’t sell new life insurance policies but instead buys up old ones from other providers and manages them for profit. This concept is known as managing ‘closed books’, where a firm takes on the existing policies from other insurance firms no longer accepting new customers.
High yields often mean a falling share price or future dividend cuts. So while Phoenix is hitting cash targets, this might not be sustainable.
M&G (MNG) is one of the UK’s biggest investment firms, managing billions in pensions, savings, and investment funds. With a dividend yield of over 9%, it might look like a dream to some income investors. The company is financially strong, cutting costs and paying down debt while keeping cash flowing. Profits from asset management grew, and it’s expanding internationally.
But there’s a catch. Their 2024 half year earnings report showed clients withdrawing more money than they were putting in, which could spell trouble down the line. And while M&G’s dividend is still being paid, the total yield has been declining. =, Which could be a sign that management is being cautious.
If outflows continue, M&G may struggle to keep its payouts at current levels. For now, the dividend is intact, but it’s worth watching closely.
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Taylor Wimpey is one of the UK’s biggest housebuilders, offering an 8.5% dividend yield and generating a hefty £162m in free cashflow in its latest annual results. Property sales are picking up, and with the government looking to speed up planning approvals, the outlook for new developments has improved.
Looking forward, its order book is at £2.3bn, around 21% larger than this time last year.
At the same time, building costs are set to rise, and the sector is holding out for another cut to mortgage rates. Though, that depends on interest rate cuts, which are anything but promised.
Then there’s the dividend itself. Taylor Wimpey is paying out almost everything it earns, with a dividend cover below 1. That means the payout relies on cash reserves rather than a comfortable profit buffer. If earnings take another hit, the dividend could be at risk.
This high yield might seem attractive right now, but investors should keep an eye on falling cash reserves and rising costs.
Legal & General (LGEN) is another pension, investment, and insurance giant on this list. It’s known for a lengthy history of dividend payments, all the way back to 1998.
The company has recently reaffirmed its profit expectations for the year and completed a £200m share buyback program in November 2024. L&G announced a further £1bn share buyback in February 2025 too. These programs can reward shareholders or signal the firm’s confidence in its own stock. Investors can sometimes benefit from an increase in share price as well, and L&G has had a modest increase since its latest delivery.
In their latest set of financial results, they extended the share buyback to £500m for 2025 and increased the dividend by 5%, indicating their intention to return more than £5bn to shareholders within the next three years.
Looking ahead, L&G expects profits to keep growing at a steady pace and generate billions in spare capital, but as with any complex business tied to financial markets, things can change fast.
Vodafone (VOD) had the highest brand value of all UK firms back in 2023. The firm’s share price has more or less declined since then. And that trend was further amplified by its latest earnings statement – even though Vodafone reported signs of growth.
While the telecoms giant is a UK-based firm, around one third of the group’s revenue comes from Germany. And last year, Germany enacted a law that gave tenants the right to choose their own TV provider (rather than being chosen by their landlord or letting agent.) Vodafone has lost millions of customers as a result, and its German revenue tumbled a further 7.6% in its latest quarter.
Vodafone has also been selling off some of its divisions and non-core assets to bolster its funds and pay off debt. It has even been using some of that cash for share buybacks.
While Vodafone’s current dividend yield is 8.1%, its forward yield will drop to 5.4%, given it has already announced a cut. This will ultimately kick it out of its current standing in fifth place among the top five UK dividends.
Source: FE Fundinfo as at 6 March 2025. Basis: in local currency terms with income reinvested. Past performance is not a reliable indicator of future returns.
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