Are these the best FTSE 100 dividend stocks to watch in January 2026?

The FTSE 100 has delivered a strong performance this year, outperforming the S&P 500 for the first time since 2016 and reaching record highs on multiple occasions. Although the index saw a pullback of a little over 4% in November, driven by global risk aversion and a rotation out of crowded trades, the broader trend has remained positive, supported by strength in mining, financials and other internationally exposed sectors.

The absence of large, high-growth technology stocks has been a relative advantage. As investors reassess exposure to US equities that look expensive on historical measures, the FTSE 100 has offered diversification, lower valuations and a higher dividend yield. This has been reinforced by rising commodity prices and resilient earnings from globally focused companies, rather than any material improvement in the domestic UK economy.

Despite its defensive qualities, the index is not insulated from global selloffs. Periods of weakness can, however, create opportunities to identify companies with sustainable cash generation and credible dividend growth. Dividends are not guaranteed and can change, so income should be assessed alongside balance sheets, earnings resilience and longer-term business prospects rather than in isolation.

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 January 2026. Remember: they may not be the best investments, and the dividends and capital itself are not guaranteed.

NatWest Group (NWG)

NatWest Group PLC is positioned as a domestically focused UK bank offering a balance between income generation and moderate dividend growth. Earnings have been supported by higher interest rates, which lifted net interest income, while a relatively simple business model has helped keep costs and risk contained. Capital ratios remain strong, allowing the bank to maintain dividends alongside buybacks. Dividend cover of 2.59 indicates a reasonable buffer against earnings volatility. Over time, interest rate cuts could reduce margins, placing more emphasis on volume growth and cost discipline. Credit quality and the health of the UK economy remain important variables, given NatWest’s concentration in retail and commercial banking. The gradual reduction of government ownership has improved flexibility but does not materially change the underlying investment case. Overall, NatWest fits a yield-plus-growth approach through stable cash generation rather than rapid expansion.

NatWest Group weekly candlestick chart

J Sainsbury (SBRY)

J Sainsbury PLC provides income supported by relatively defensive cash flows from food retailing. While margins remain thin, the group has focused on price competitiveness, efficiency and customer loyalty to protect volumes. The Argos business adds diversification, though grocery remains the main earnings driver. Dividend cover of 1.59 suggests payouts are supported but not overly conservative, meaning dividend growth is likely to be steady rather than strong. Inflation easing could offer some margin relief, though competitive pressure across UK food retail is likely to persist. Capital allocation has been cautious, with a focus on maintaining balance sheet strength. Sainsbury’s role in a yield-focused portfolio is primarily defensive, offering income stability with limited growth rather than significant upside potential.

J Sainsbury weekly candlestick chart

Whitbread (WTB)

Whitbread PLC combines income with more cyclical growth exposure through its Premier Inn hotel business. Trading has improved as travel demand normalised, supporting the reinstatement and gradual growth of dividends. Dividend cover of 1.47 reflects a balance between shareholder returns and reinvestment, particularly in the expansion of Premier Inn in Germany. The UK business benefits from strong brand recognition and scale, though earnings remain sensitive to consumer spending and cost inflation, especially wages. Over time, easing cost pressures and operational efficiencies could support further dividend growth, but returns are likely to fluctuate with the economic cycle. Whitbread contributes diversification within an income portfolio by adding exposure to leisure and hospitality rather than purely defensive sectors.

Whitbread weekly candlestick chart

Lloyds Banking Group (LLOY)

Lloyds Banking Group PLC is a UK-focused bank with a long-standing emphasis on income returns. Higher interest rates have supported profitability and dividend growth in recent years, while dividend cover of 1.97 provides some protection against earnings swings. The group’s concentration in mortgages and retail banking makes it sensitive to UK economic conditions and housing market trends. As interest rates decline, margins may come under pressure, increasing reliance on cost control and credit quality. Lloyds’ capital-light model supports continued dividends, though growth is likely to be modest. The shares suit investors seeking predictable income linked closely to the domestic economic cycle rather than international diversification.

Lloyds Banking Group weekly candlestick chart

HSBC Holdings (HSBA)

HSBC Holdings PLC offers income backed by geographically diversified earnings, with a strong contribution from Asia. Higher global interest rates have lifted profitability, enabling dividend growth and reinforcing management’s focus on shareholder returns. Dividend cover of 1.43 is lower than some UK peers but supported by the scale and diversity of earnings. Strategic simplification has improved efficiency, though exposure to emerging markets introduces geopolitical and regulatory risks. Over the medium term, growth in Asian banking and wealth management could support dividend progression, balanced against global economic uncertainty. HSBC fits a yield-plus-growth strategy through diversification rather than reliance on the UK economy alone.

HSBC Holdings weekly candlestick chart

How to invest or trade in FTSE 100 dividend stocks

1. Learn more about FTSE 100 dividend stocks
2. Decide whether you want to trade or invest
3. Open an account 
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.