In this article, we discuss 10 high-yield UK dividend stocks to buy now.
In early May, the Bank of England raised interest rates from 0.75% to 1% to tackle rising inflation. The bank also warned that despite the measure, inflation could still climb to more than 10% this year, the highest level since 1982. Andrew Bailey, the governor of the central bank, said that the action was warranted and that the bank was walking a “narrow path” between the dual risks of inflation and recession facing the British economy. The increase in interest rates has pushed borrowing costs to their highest since the 2008 financial crisis.
According to Bailey, the Russian invasion of Ukraine and the supply disruptions due to the virus crisis in China have contributed to the rise in inflation over the past few months. The pound sterling dropped by almost 3% against the dollar after the market took in the worsening situation in the United Kingdom. The UK government is now under pressure to raise taxes on oil and gas firms, which have seen profits surge due to rising energy prices, to fund measures aimed at helping families with low incomes during the coming economic crisis.
The developing situation has forced investors to flock to reliable businesses with solid track records, like Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and The Procter & Gamble Company (NYSE:PG), to weather the storm. The full scope of the impending crisis is still unclear, with the Bank of England claiming that households might see the biggest squeeze to their incomes since records started being kept in 1964. Energy prices are also set to rise further in Europe as the Ukraine war drags on.
The UK economy is also set to shrink as the crisis worsens. According to the central bank, although the economy might “technically” avoid a recession, it would still shrink by around 0.25% through 2023. The unemployment rate in the next few months is also likely to rise to around 5.5%. The situation is equally grim across the Atlantic as well. The United States Federal Reserve also raised interest rates by 0.5 percentage points last week, the biggest single increase since the turn of the millennium, as it sought to tackle soaring prices.
Our Methodology
The companies that are based in the United Kingdom and offer a dividend yield of around 5% as of May 11 were selected for the list. The dividend yield of each stock is mentioned alongside other details about the companies to provide some additional context.
High-Yield UK Dividend Stocks to Buy Now
10. Lloyds Banking Group plc (NYSE:LYG)
Dividend Yield as of May 11: 4.72%
Lloyds Banking Group plc (NYSE:LYG) provides banking and financial services. For the past six years, the company has consistently paid a dividend to shareholders. However, the firm still has a long way to go before establishing itself as a legacy player in this space since the sector median in this regard is almost double at 13 years. On April 6, the firm declared a dividend of $0.068 per share. The dividend will be payable to shareholders by the end of May.
On April 27, Bank of America analyst Rohith Chandra-Rajan upgraded Lloyds Banking Group plc (NYSE:LYG) stock to Buy from Neutral and raised the price target to GBP 57 from GBP 46, noting that the “11 basis point margin expansion quarter-over-quarter bodes well for upcoming policy rate raises”.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Lloyds Banking Group plc (NYSE:LYG), with 4 million shares worth more than $10 million. Overall, at the end of the fourth quarter of 2021, 7 hedge funds in the database of Insider Monkey held stakes worth $14 million in Lloyds Banking Group plc (NYSE:LYG), compared to 8 in the previous quarter worth $16 million.
Just like Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and The Procter & Gamble Company (NYSE:PG), Lloyds Banking Group plc (NYSE:LYG) is one of the stocks that elite investors have on their radar as inflation rises.
In its Q3 2021 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Lloyds Banking Group plc (NYSE:LYG) was one of them. Here is what the fund said:
“Lloyds’ great return is partly the result of its exceptionally low starting price. Nevertheless, Lloyds Banking Group plc (NYSE:LYG) fundamentals have also improved in part because of management’s conservative approach to reserving for loan losses as well as its decision at the beginning of the pandemic to suspend its program of returning excess capital to shareholders—a program it has since reinstated.”
9. Taylor Wimpey plc (LSE:TW.L)
Dividend Yield as of May 11: 7.11%
Taylor Wimpey plc (LSE:TW.L) operates as a residential developer. On March 3, the firm posted earnings for the 2021 fiscal year, reporting earnings per share of 18 pence per share and a revenue of £4.28 billion, up more than 53% compared to the revenue in the previous fiscal year. Pete Redfern, the CEO of the firm, said during the earnings call that the year reflected a back to normal mentality after the strangeness of 2020. He also highlighted the strong sales numbers of the firm through the year despite inflation tailwinds.
On April 27, JPMorgan analyst Rajesh Patki maintained an Overweight rating on Taylor Wimpey plc (LSE:TW.L) stock and lowered the price target to GBP 180 from GBP 190. Investec and Barclays are also bullish on the stock.
8. Antofagasta plc (LSE:ANTO.L)
Dividend Yield as of May 11: 8.45%
Antofagasta plc (LSE:ANTO.L) is a London-based mining firm. On February 22, the company posted earnings for the 2021 fiscal year, reporting earnings per share of $1.43 and a revenue of $7.4 billion, up more than 45% compared to the revenue over the same period last year. The firm also provided guidance numbers for 2022, with gross production of 660-690,000 tonnes of copper, 170-190,000 ounces of gold, and 8,500-10,000 tonnes of molybdenum. The capital expenditure for 2022 was guided close to $2 billion.
On April 13, Scotiabank analyst Orest Wowkodaw maintained a Sector Perform rating on Antofagasta plc (LSE:ANTO.L) stock and lowered the price target to GBP 1,600 from GBP 1,700. Morgan Stanley and UBS have also lowered the targets on the stock recently.
7. Legal & General Group Plc (LSE:LGEN.L)
Dividend Yield as of May 11: 7.52%
Legal & General Group Plc (LSE:LGEN.L) provides insurance products and related services. The firm delivered solid earnings in 2021 and the pattern looks set to continue in 2022. The operating profits for the company increased 11% year-on-year during the period, clocking in at around GBP 2.6 billion. The earnings per share for the firm in 2021 were 72% higher than the previous fiscal year. They were 19% higher when compared to pre-COVID figures from 2019. The dividend growth over the period was also impressive.
In late March, investment advisory Deutsche Bank maintained a Buy rating on Legal & General Group Plc (LSE:LGEN.L) stock and raised the price target to GBP 330 from GBP 320. Analyst Oliver Steel issued the ratings update.
6. British American Tobacco p.l.c. (NYSE:BTI)
Dividend Yield as of May 11: 8.78%
British American Tobacco p.l.c. (NYSE:BTI) provides tobacco and nicotine products. The company has a solid dividend history stretching back to around 12 years. Over the past three years, these payouts have been growing consistently. On February 17, the company declared a quarterly dividend of $0.735 per share, an increase of around 1.4% from the previous dividend of $0.725 per share. Interest in the stock as an inflation hedge has increased in recent weeks as interest rates rise and investors flock to reliable dividend players.
On March 24, JPMorgan analyst Jared Dinge upgraded British American Tobacco p.l.c. (NYSE:BTI) stock to Overweight from Neutral and raised the price target to GBP 4,000 from GBP 3,550, noting that vapor was a “key pillar” for the future of the nicotine industry and the company was “best placed” to take advantage of this transition.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm GQG Partners is a leading shareholder in British American Tobacco p.l.c. (NYSE:BTI) with 15 million shares worth more than $567 million.
At the end of the fourth quarter of 2021, 18 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in British American Tobacco p.l.c. (NYSE:BTI), compared to 9 in the previous quarter worth $724 million.
Along with Johnson & Johnson (NYSE:JNJ), The Coca-Cola Company (NYSE:KO), and The Procter & Gamble Company (NYSE:PG), British American Tobacco p.l.c. (NYSE:BTI) is one of the stocks that hedge funds are monitoring in light of rising inflation.
In its Q4 2021 investor letter, Motiwala Capital, an asset management firm, highlighted a few stocks and British American Tobacco p.l.c. (NYSE:BTI) was one of them. Here is what the fund said:
“British American Tobacco p.l.c. (NYSE:BTI) is one of the largest tobacco companies in the world. In 2021, BTI should have generated $37B in revenues and $10B in net income. The company is paying down debt while continuing to invest in new categories. BTI pays a high dividend payout that is well covered by free cash flow. British American Tobacco p.l.c. (NYSE:BTI) traded at 10 PE and 8% yield at purchase. The shares should appreciate as EPS grows, company pays down debt and continues to increase dividends.”
5. Phoenix Group Holdings plc (LSE:PHNX.L)
Dividend Yield as of May 11: 8.27%
Phoenix Group Holdings plc (LSE:PHNX.L) provides savings and retirement services. Some of the products that the company markets include unit-linked funds, profit funds, annuities, workplace pensions, and individual savings and retirement solutions. It employs more than 8,000 people and has over two centuries of experience in the finance sector. The four segments through which it operates include K Heritage, UK Open, Europe, and Management Services. The company serves individuals as well as corporations.
On March 31, JPMorgan analyst Farooq Hanif upgraded Phoenix Group Holdings plc (LSE:PHNX.L) stock to Overweight from Neutral with a price target of GBP 800, noting that pricing for the insurance sector remained strong and was likely to “feed into further margin improvement in the next 12-18 months”.
4. M&G plc (LSE:MNG.L)
Dividend Yield as of May 11: 8.85%
M&G plc (LSE:MNG.L) is a diversified financial services firm. On March 8, the firm posted earnings for the full fiscal year 2021, reporting earnings per share of £3.20 and a revenue of £17.77 million, up more than 16.8% compared to the revenue in the previous fiscal year. John Foley, the CEO of the firm, said during the earnings call that the firm had undergone a reorganization in management during the past few months and the market-beating earnings were a testament to the success of this initiative.
On March 31, JPMorgan analyst Farooq Hanif upgraded M&G plc (LSE:MNG.L) stock to Neutral from Underweight and raised the price target to GBP 250 from GBP 215, noting that there reasons to be incrementally positive on the European insurance sector.
3. Imperial Brands PLC (LSE:IMB.L)
Dividend Yield as of May 11: 8.34%
Imperial Brands PLC (LSE:IMB.L) makes and sells tobacco and related products. The company has an impressive dividend history stretching back more than 10 years. On February 17, it declared a dividend of $0.642 per share. The stock has been hit by the war in Ukraine as Russia is one of the largest tobacco markets in Europe. Inflationary tailwinds have also had their impact on margins. Despite these setbacks, the company is well-positioned to ride out the storm as the products it markets are cheaper than the competition.
In early February, Morgan Stanley analyst Rashad Kawan upgraded Imperial Brands PLC (LSE:IMB.L) stock to Equal Weight from Underweight and raised the price target to GBP 1,955 from GBP 1,680, citing valuation and buyback potential as some of the reasons behind the ratings update.
2. Persimmon Plc (LSE:PSN.L)
Dividend Yield as of May 11: 11.44%
Persimmon Plc (LSE:PSN.L) operates as a house builder. It has three distinct divisions under which it carries on day-to-day operations. These include family housing, executive housing, and social housing plans. These are all marketed under different brand names like Persimmon Homes, Charles Church, and Westbury Partnerships. The firm employs more than 5,000 people and has been in the house building business since the early 1970s. It has a market cap of close to $8 billion.
On April 28, JPMorgan analyst Rajesh Patki kept an Overweight rating on Persimmon Plc (LSE:PSN.L) stock and raised the price target to GBP 3,110 from GBP 2,830. Other investment advisors like Berenberg and Morgan Stanley are also bullish on the stock.
1. Rio Tinto Group (NYSE:RIO)
Dividend Yield as of May 11: 12.12%
Rio Tinto Group (NYSE:RIO) is a diversified metals and mining firm. Jakob Stausholm, the CEO of the firm, said at the general meeting of the company on May 5 that Rio Tinto was planning to increase growth capital spending to around $4 billion per year by 2023. The announcement comes as copper and iron futures fall to record lows. Per Stausholm, the growth capital spending will focus on materials required for energy transition. The company has reignited interest in the Jadar lithium mine in Serbia as part of this initiative.
On April 21, investment advisory JPMorgan maintained a Neutral rating on Rio Tinto Group (NYSE:RIO) stock with a price target of GBP 5,730. Analyst Lyndon Fagan issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Rio Tinto Group (NYSE:RIO), with 14 million shares worth more than $1.1 billion.
You can also take a peek at 10 Russell 2000 Basic Materials Dividend Stocks to Buy and 10 Utilities Stocks with Over 3% Dividend Yield.
Follow Insider Monkey on Twitter
Suggested Articles:
- 10 Financial Services Dividend Stocks with Over 4% Yield
- 15 Best Momentum Stocks To Invest In
- 10 Cheap Hemp Stocks Redditors are Buying
Disclosure. None. 10 High-Yield UK Dividend Stocks to Buy Now is originally published on Insider Monkey.
