As an income investor, there are lots of stocks within the FTSE 100 and FTSE 250 that pay a dividend for me to consider. Clearly, some stocks are going to offer below average yields that might not be the best for me to buy. Even with these taken into consideration, there are plenty of other top UK stocks where I can find high dividend yields.
Ideas within finance
To start off with, I’d turn to the financial sector. Even within this area, there’s a broad range of sub-sectors containing top UK stocks. For instance, retail trading platforms. Examples here include Plus500, CMC Markets and IG Group. All three businesses operate in the same space. The companies provide retail brokerage and leveraged trading facilities to everyday investors like me.
This area of finance has done very well over the course of the pandemic. Market volatility saw large numbers of new accounts opened and transactions going through. This has seen a lull over this summer, but the companies are still in a good place to capitalise on retaining the clients gained during 2020.
The highest yielder at the moment is CMC Markets, with a figure just over 10%. This is even with an interim dividend cut from 9.2p to 3.5p. Plus500 has a dividend yield of 6.66%, with IG Group at 5.62%.
A risk for this sector is that we could see dividend cuts in 2022 if market volatility doesn’t pick up. With lower profits, the businesses might decide to retain those profits for cash flow instead of paying them out to investors.
Stocks with higher risk, but higher reward
Another area I think has some top UK stocks is the tobacco sector. Within the FTSE 100, both Imperial Brands and British American Tobacco have dividend yields above 8%.
A risk that has deterred some investors from buying these companies is that traditional cigarette products are likely to see lower demand in years to come. The growing popularity of ESG investing also means that both companies are often negatively screened out of any shortlists for people targeting ESG friendly portfolio.
Despite this, I think both companies can offer me attractive income payouts for years to come. Both are investing heavily in new projects, something Imperial Brands refers to as Next Generation Products. The awareness of the need to adapt is something that gives me confidence going forward.
Don’t get me wrong, I think this is a higher-risk sector than others. But with dividend yields this high, I’ll obviously need to accept a higher level of risk to hopefully be rewarded with this level of income.
Overall, I’d consider buying shares of all companies mentioned when looking for high dividend yields.
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Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended British American Tobacco and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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