Are these the best FTSE 100 dividend stocks to watch in May 2025?

Over the past month, the FTSE 100 has experienced significant volatility dropping from 8634 points to 7679 points due to economic uncertainties surrounding US tariffs and a potential trade war. It has since rallied, now standing at 8399 points as these tariffs were paused for 90 days and the US considers lowering tariffs on Chinese goods.

FTSE 100 macroeconomics

After meeting the Bank of England’s (BOE) CPI inflation target rate of 2.0% on 2 August 2024, interest rates have gradually been reduced by 0.50 basis points and currently stand at 4.50%.

Since then, inflation has risen and now stands at 3.4%. As higher energy prices and the impact of higher taxes on businesses come into play, in the short term, this figure is expected to increase further.

Despite this, at its next meeting on 8 May, it’s expected rates will be cut by 0.25%, with further cuts likely later this year. This decision is influenced by the expected impact of US tariffs, which the BOE anticipate will have a deflationary impact on the UK economy as its decision not to introduce reciprocal tariffs could result in cheaper goods from Asian and European companies as they look to increase sales to the UK as they reduce sales to the US.

That said, there are still many uncertainties surrounding these tariffs and it’s possible that they’ll have an inflationary impact. If this becomes the case, rate cuts will be more gradual.

Then there’s the AI—fuelled surge of the US tech stocks to consider. This may be a sustainable rise given the tech advances at hand or it may be a bubble that eventually bursts. If the latter, this excess capital may find itself within FTSE 100 dividend stocks until the storm blows over.

This all makes investing in FTSE 100 dividend stocks complex. In particular, the highest dividend yields can be hostage to economic policy — where individual investment cases and changing financial landscapes can create value traps or payout irregularities.

Open an account and start trading some of the top UK dividend stocks in 2025.

Best FTSE 100 dividend shares to watch

These shares are the highest yielding on the index with a dividend cover ratio of 1 or higher as of 17 March 2025. They may not be the best investments and the dividends and capital itself are not guaranteed.

M&G (Dividend yield: 10.3%)

Savings and investment company M&G has two main arms to the company, life insurance and asset management. The way these two segments work together can be beneficial but is quite complex and difficult for everyday investors to understand, which can potentially limit demand.

The company performed well throughout 2024 and beat its profit expectations due to successful cost cutting and strong performance from its asset management segment. It also announced plans to increase dividend payments to shareholders each year if funds permit.

On 27 March this year, the company announced an interim dividend of 13.50p which will be paid out to shareholders in May. M&G has a cover ratio of 1.4, which indicates that if its strong performance continues, the company is well positioned to continue with dividend payments.

Going forward, the company aim to grow its Asset Management and Wealth side of the business, so its profits account for 50% of the overall business, whilst beginning to phase out its annuity portfolio and legacy products.

Phoenix (Dividend yield: 9.3%)

Savings and retirement company Phoenix Group reported strong results throughout 2024 with operating profit up by 31%, driven by a good performance in savings, pensions and retirement solutions. As a result, the company has upped its 2026 guidance from £900m to £1.1bn.

On 3 April this year Phoenix Group paid a dividend of 27.35p to shareholders, up from 26.65p the year before. With a cover ratio of 6.0 the company appears well positioned to offer strong dividend payments throughout 2025.

The company remains optimistic about its performance for the rest of the year, with plans to continue investing in growth and reducing debt.

B&M (Dividend yield: 9.3%)

B&M is a retail company that has 707 stores which are situated in retail parks, shopping areas and town centers across France and the UK. Its stores offer a variety of items which include food, homeware, clothing and pet products.

Strong performance during Q4 means the company’s full year results were in line with its guidance. Revenue increased by 3.7%, mostly due to a 5% increase in new stores. Strong performance in France helped offset declines in sales from the UK.

Looking forward, the retailer plans to continue increasing its store count and is looking to open 73 new stores in the next two—year period.

Its strong financial performance in 2024 has enabled the company to reward shareholders with a special dividend of 15.0p. Although future dividend payments aren’t guaranteed, the company’s healthy cover ratio of 4.7 positions it well for future payouts.

Vodafone (Dividend yield: 8.1%)

In Q3, telecommunications company Vodafone reported robust results with revenue reaching €9.6 billion, up 5% year— on— year. This was mostly due to growth in Turkey, Africa and Other Europe, which helped offset weaker sales in Germany.

Although performance remains strong, like others in the telecom sector, Vodafone faces challenges such as low sales growth relative to spending. The company has restructured by cutting jobs and started merging its UK business with Three. Whilst these business moves are positive, investor sentiment remains cautious and is likely to continue to do so if its performance in Germany doesn’t improve

On 7 February the company distributed a dividend of 2.25¢ per share to shareholders. This dividend payment was reduced from 4.50¢ the previous year after the sale of its Italian and Spanish operations. Vodafone has a dividend cover ratio of 6.90, which indicates that the company has enough cash to continue paying dividends over the next year.

British American Tobacco (Dividend yield: 7.6%)

In 2024 British American Tobacco saw sales increase by 1.3% and revenues for New Category products reached 8.9%.

However, the FTSE 100 tobacco company will have to pivot fast, as sales from traditional smoking products continue to decline across the US. The company is working hard to move its customers onto its next generation vaping products, but this isn’t without risk. The UK recently announced a ban on disposable vapes and is looking to impose a specific vaping tax. This could hit BATS’ long—term ambitions in non—combustible categories and negatively impact margins if similar legislation is adopted more broadly.

On 7 February the company paid out a dividend of 60.60p per share to shareholders. This is up from 58.8795p the year before.

Our analysts have given the stock a buy rating, with an average price target of 3256p.

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1. Learn more about FTSE 100 dividend stocks
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4. Search for your chosen stock on our web platform or app
5. Make your investment or trade

When you invest in a share you buy it outright with the view that it’ll increase in value over time.

Trading takes a more short—term view where you look to take advantage of smaller market movements. It involves leverage which allows you to take a position that’s larger than your initial deposit. This means market movements are magnified, and you could gain or lose money faster than expected.

For example, if you trade with 5:1 leverage, you could place a £1000 deposit and manage a £5000 position. A 10% increase or decrease in the market could result in 50% profit or loss on your initial margin.

Negative balance protection will prevent you from losing more than your initial deposit, but market movements can be fast and unpredictable and you could lose your full deposit.