Top 5 FTSE 100 dividend stocks: high-yield options for income investors
In a volatile market environment, these five FTSE 100 companies offer attractive dividend yields and strong income potential for investors seeking regular returns.
The appeal of dividend stocks in today's market
Dividend-paying stocks in the FTSE 100 continue to attract investors seeking reliable income streams amidst market volatility. Among these, several companies stand out for their consistent and attractive dividend yields.
This article highlights five top FTSE 100 dividend stocks, including National Grid, having reported better-than-expected full-year earnings on Thursday 15 May, and known for its dependable payouts. Even though revenues might be a touch weaker, increased profit tells a tale of continued efficiency gains in the business, and with tariff turmoil receding for now the demand outlook has picked up too in its vital US market.
The search for income has become increasingly challenging in recent years, with bond yields remaining relatively low despite the Bank of England's (BoE) interest rate hikes. This environment has pushed many investors towards equity income strategies as an alternative source of returns.
The FTSE 100 has historically been known for its dividend-paying credentials, with an average yield that consistently outpaces many global indices. This characteristic has made the UK market particularly attractive to income-focused investors, both domestic and international.
Despite economic uncertainties surrounding the US’s global tariff policy and, for now at least, slowing inflation, many blue-chip UK companies have maintained their commitment to shareholder returns. The companies highlighted below have demonstrated particular resilience in this regard, offering yields significantly above the index average.
Legal & General – consistent returns and strategic focus
Legal & General has long been a cornerstone for income-focused investors. With a dividend yield averaging 6.7% over the past decade, it surpasses the FTSE 100 average of 3.9%. The company has announced plans to return over £5 billion to shareholders in the next three years, including £3.6 billion in dividends. Recent strategic moves, such as selling its housebuilding division and streamlining operations, have bolstered its financial position, making it a compelling choice for dividend seekers.
The financial services giant has maintained a progressive dividend policy, with a solid track record of increasing payouts over time. This consistency has been particularly valued by investors during periods of market uncertainty.
Legal & General's business model is well-diversified across insurance, investment management, and retirement solutions. This diversification provides multiple streams of cash flow that support the company's dividend commitments even when individual segments face challenges.
Recent financial results have shown resilience, with the company reporting strong capital generation and a robust Solvency II ratio. As of December 31, 2024, Legal & General's Solvency II coverage ratio stood at 232%, up from 224% the previous year. This indicates that the company's eligible own funds were more than double its Solvency Capital Requirement (SCR), reflecting a solid capital position. These metrics provide reassurance regarding the sustainability of dividend payments, which remains a primary concern for income investors assessing potential opportunities.
According to LSEG Data & analytics, 4 analysts have a ‘strong buy’ recommendation for Legal & General, 10 a ‘buy’ and 4 a ‘hold’ (as of 14/05/2025).
Legal & General has a TipRanks Smart Score of ‘5 Neutral’ and is rated as a ‘buy’ with 3 ’buy’ and 2 ‘hold’ recommendations (as of 14/05/2025).
Legal & General LSEG Data & Analytics and TipRanks Smart Score chart
British American Tobacco – high yields despite industry headwinds
British American Tobacco (BATS) remains a stalwart in delivering substantial dividends. As of late 2024, it was among the top three UK dividend stocks, alongside Legal & General and National Grid. The company's consistent dividend payments and strong cash flows make it a reliable option for investors seeking steady income, despite the regulatory challenges facing the tobacco industry.
The tobacco giant currently offers a dividend yield approaching 8%, reflecting both its generous payout policy and the discounted valuation applied to the sector due to long-term structural challenges. This high yield provides a significant income cushion even if share price appreciation remains modest.
BATS has been actively transitioning towards reduced-risk products such as vaping and heated tobacco options. This strategic pivot aims to secure the company's future revenue streams as traditional cigarette consumption declines in developed markets.
While the tobacco industry faces continuing regulatory pressure and changing consumer habits, British American Tobacco's strong cash generation capabilities and global market position have allowed it to maintain its dividend credentials. The company's focus on cost control and pricing power has helped sustain margins despite volume challenges.
As of 14 May 2025 and according to LSEG Data & analytics 4 analysts have a ‘strong buy’ recommendation for BATS, 5 a ‘buy’, 4 a ‘hold’ and 1 a ‘sell’.
BATS has a TipRanks Smart Score of ‘6 Neutral’ and is rated as a ‘buy’ with 4 ’buy’, 2 ‘hold’ and 1 ‘sell’ recommendation (as of 14/05/2025).
British American Tobacco LSEG Data & Analytics chart and TipRanks Smart Score chart
National Grid – stable income from essential infrastructure
National Grid is renowned for its stable dividend policy, aiming to grow payouts in line with UK inflation. In 2024, the company paid a total dividend of 58.52p per share, marking a 5.56% increase from the previous year. This resulted in a dividend yield of approximately 6.0%. While the company has a significant capital investment plan of £60 billion over the next five years, its commitment to maintaining a robust dividend makes it an attractive option for income investors.
As the operator of the UK's electricity and gas transmission networks, National Grid benefits from predictable, regulated revenue streams. This business model provides the stability that underpins its consistent dividend policy, making it a defensive option during economic downturns.
The company's strategic focus on upgrading infrastructure to support the energy transition presents both challenges and opportunities. While significant capital expenditure is required, these investments are expected to generate stable returns over the long term due to the regulatory framework governing National Grid's operations.
National Grid's dividend has shown remarkable consistency over time, with a strong record of inflation-linked growth.
According to LSEG Data & analytics, 4 analysts have a ‘strong buy’ recommendation for National Grid, 10 a ‘buy’ and 4 a ‘hold’ (as of 14/05/2025).
National Grid has a TipRanks Smart Score of ‘8 Outperform’ and is rated as a ‘buy’ with 5 ’buy’ and 2 ‘hold’ recommendations (as of 14/05/2025).
National Grid LSEG Data & Analytics chart and TipRanks Smart Score chart
Phoenix Group – insurance consolidator offering exceptional yield
Phoenix Group Holdings, specialising in life insurance and pensions, offers one of the highest dividend yields in the FTSE 100, standing at close to 9% as of May 2025.
The company's business model focuses on managing closed life insurance books, providing predictable cash flows that support its generous dividend policy. For investors seeking high-yield opportunities, Phoenix Group presents a compelling case.
The company's focus on acquiring and efficiently managing legacy insurance portfolios generates substantial and relatively predictable cash flows. This business model is specifically designed to produce returns that can be distributed to shareholders through dividends.
Phoenix Group has successfully integrated several major acquisitions in recent years, the latest being Sun Life UK in 2022, a closed life and pensions business. These transactions have expanded its scale and enhanced its cash generation capabilities, providing further support for its dividend commitments.
While the exceptionally high yield might raise questions about sustainability, Phoenix has maintained a consistent dividend policy supported by its resilient business model.
As of 14 May 2025, and according to LSEG Data & analytics, 2 analysts have a ‘strong buy’ recommendation for Phoenix Group, 5 a ‘buy’, 4 a ‘hold’ and 3 a ‘sell’.
Phoenix Group has a TipRanks Smart Score of ‘6 Neutral’ and is rated as a ‘hold’ with 2 ’buy’, 2 ‘hold’ and 2 ‘sell’ recommendations (as of 14/05/2025).
Phoenix Group LSEG Data & Analytics chart and TipRanks Smart Score chart
M&G – asset manager with attractive income potential
M&G, an asset management and insurance company, offers a substantial dividend yield of 9.24%. Despite facing challenges such as fund outflows and market volatility, the company remains confident in its ability to generate operating capital and maintain its dividend payouts. Investors should, however, remain cautious and monitor the company's financial health to ensure the sustainability of its dividends.
Since its demerger from Prudential in 2019, M&G has positioned itself as an income-focused investment, with a stated commitment to maintaining a stable dividend. This policy has attracted income-seeking investors, particularly in the current market environment.
The company's business spans both asset management and insurance, providing diversification benefits that help support its dividend policy. The insurance segment, in particular, generates relatively stable cash flows that underpin shareholder returns.
Recent strategic initiatives have focused on improving operational efficiency and developing new growth opportunities. The success of these efforts will be crucial in determining whether M&G can maintain its generous dividend policy over the longer term while also investing for future growth.
According to LSEG Data & analytics, 2 analysts have rated M&G as a ‘strong buy’, 3 as a ‘buy’ and 9 a ‘hold’ (as of 14/05/2025).
M&G has a TipRanks Smart Score of ‘2 Underperform’ and is rated as a ‘hold’ with 1 ’buy’ and 3 ‘hold’ recommendations (as of 14/05/2025).
M&G LSEG Data & Analytics chart and TipRanks Smart Score chart
Top five UK FTSE 100 dividend stocks share price comparison
When looking at the above mentioned companies’ share price one can see that year-to-date they are also all trading in the green with most outperforming the FTSE 100’s near 4% gain.
How to invest in dividend stocks
These five FTSE 100 companies - Legal & General, British American Tobacco, National Grid, Phoenix Group, and M&G - stand out for their strong dividend yields and commitment to returning value to shareholders. While each has its unique strengths and challenges, they collectively offer attractive opportunities for investors seeking income in the UK equity market.
For those looking to invest in these dividend stocks, here's a straightforward approach:
- Research each company thoroughly, examining dividend coverage ratios, payout policies, and business fundamentals to ensure the sustainability of dividends.
- Decide whether you want to invest directly in individual shares or gain broader exposure through an income-focused fund or ETF.
- Open an account with IG by visiting our website and completing the application process.
- Search for your chosen shares on our platform or app and review their dividend history and current yield.
- Place your trades, considering a diversified approach to mitigate the risk of dividend cuts or suspensions from any single company.
While high dividend yields are attractive, investors should remember that they can sometimes indicate underlying business challenges rather than generosity. A sustainable dividend requires strong cash flow generation, manageable debt levels, and a business model that can withstand economic downturns.
When building a dividend portfolio, consider complementing these high-yield options with companies offering more modest current yields but stronger dividend growth prospects. This balanced approach can provide both immediate income and the potential for increasing payments over time.
Trading (https://www.ig.com/uk/shares/how-to-buy-trade-shares) these shares through spread betting or CFDs can also be appropriate for those looking to speculate on price movements rather than collect dividend income directly. However, remember that these leveraged products carry higher risks alongside their potential rewards.
In an environment where generating reliable income remains challenging, these five FTSE 100 dividend champions offer compelling options for investors. Their combination of substantial yields and established dividend policies provides a potential solution for those seeking regular returns from their investment portfolios in these uncertain times.
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