Jasmine Birtles
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Best Dividend Stocks for UK Investors in January 2025 (My Top 5 Picks!)
Ruby Layram
13th Jan 2025
Investing in the best dividend stocks is a popular way to build a portfolio that generates passive returns. These stocks pay out small shares of revenue to investors, providing an additional way to make money on top of capital gains.
In the UK, there are hundreds of dividend-paying stocks to choose from. However, not all of these stocks will generate the returns that you might hope for.
Whilst some dividend stocks can be a great addition to your portfolio, others come with significant risk or simply aren’t worth buying.
Creating a strong dividend portfolio is all about spotting those hidden gems that provide a high dividend yield with a relatively low risk.
So, what dividend stocks are worth buying in 2025?
The exact answer to this question will vary depending on your investing strategy and goals. For example, some investors might have a higher risk appetite than others which means that they might be able to invest in risky yet high-paying dividend shares.
On the other hand, investors who want to take less risk might be better suited to more stable dividend stocks that offer a slightly lower (but still generous) yield.
It’s all about knowing your strategy!
Nevertheless, finding the top dividend stocks in the current market is an interest shared by most investors. Therefore, I thought I would share my own top picks! Here are 5 UK dividend stocks that I am watching in January 2025.
A Bit of Helpful Info…
Before we jump into my top dividend picks, I thought it would be helpful to explain what a ‘dividend yield’ is – it will be mentioned quite a lot in this guide!
Dividend yield: This is the number that tells you how much a company will pay in dividends each year. The number is a ratio that represents the percentage of a company’s share price that is paid as a dividend. Yields between 2% and 5% are considered strong and anything above 5% is considered high.
The Best Industries for Income Stocks in January 2025
If you’re looking for the best industry to invest in for dividend stocks in January 2025, banking and insurance might just be your best option! With HSBC, Legal & General, and M&G delivering eye-popping yields over 9%, these sectors are shining bright for income-seeking investors.
One of the easiest ways to gain exposure to these stocks is to invest in an ETF that tracks UK banking and insurance stocks. The FTSE 100 Index is a good option – to fund tracks that largest UK companies (by market capitalization) including HSBC and Legal & General.
My Top 5 Dividend Stocks for January 2025
I recently did a bit of a spring clean of my investment portfolio and came across some appealing dividend opportunities. Here are 5 dividend stocks that I am watching right now.
1. HSBC Holdings
HSBC is shaping up to be an excellent dividend stock to buy in January 2025, thanks to its impressive 9% yield and a strong commitment to sustainable payouts. As the third-largest company in the FTSE 100, it resumed quarterly dividends in 2023, with a solid target payout ratio of 50% of earnings for 2024.
The bank’s financial strength, bolstered by strong cash generation and a special dividend from the sale of its Canada operations, adds further appeal. With a promising outlook for dividends and a stable position in the global banking sector, HSBC presents a compelling option for income-focused investors looking to lock in steady returns.
2. Legal & General
Legal & General is another standout dividend stock to watch, with a solid 9.4% yield and a commitment to growth.
Despite a tough year, the insurer has managed to bounce back with £200 million in share buybacks and a 2% dividend growth. With a progressive approach to dividends and a strong position in the financial sector, Legal & General offers a fantastic opportunity for investors looking for both stability and growth in their income portfolio.
If you’re after a reliable, high-yielding stock, this one’s definitely worth a look!
3. Pheonix Group
With a standout dividend yield of 10.7%, Phoenix Group is the highest-yielding stock in the blue-chip index and committed to progressive dividends. It’s an ideal pick for income-focused investors.
More often than not, companies that offer such high payouts can be a bit risky. However, Pheonix Group is considered to be a relatively stable investment option (although all investments come with risk!). The company has a robust balance sheet which means that it can comfortably support its impressive dividend yield.
4. M&G
M&G is definitely one to keep on your radar in January 2025, offering an eye-popping 10.3% dividend yield that can make your portfolio work harder for you.
After a recent dip in its share price, the company has bounced back with confidence, bringing good news for income investors. What sets M&G apart is its commitment to a stable dividend policy, which means it’s dedicated to providing a consistent payout to shareholders, no matter what.
5. Aviva
Aviva is definitely one to keep an eye on in 2025 if you’re looking for a solid dividend stock. With a healthy 7.7% yield, it’s already offering an attractive payout, and the best part? It’s on the upswing!
After a strong year, the company is expecting even better cash flow in 2025, which means more stability and growth potential for those dividend payments. Aviva has also committed to increasing its dividends in the coming year, making it an even sweeter deal for investors.
How To Invest in Dividend Stocks Safely
Dividend stocks can seem like an exciting investment opportunity for investors who want to generate passive income. However, it is important to be aware that investing in dividend shares (just like any shares) comes with risk! Here are some top tips for reducing the risks that are involved with buying dividend stocks.
Don’t be fooled by high yields!
It can be tempting to fill your portfolio with high-yield dividends that promise excellent returns. However, high yields often come with high risk!
In some cases, it is not sustainable for a company to pay high dividend yields. If the company suddenly falls into financial trouble, it may have to reduce the yield or cut it completely.
It is sometimes better to focus on companies that offer an average yield and more stability.
Diversify
If you’ve been a Magpie reader for some time, you will have definitely heard us preaching the importance of diversification before.
Diversifying your portfolio is one of the best ways to reduce risk. It involves spreading your investments across different assets, instead of putting all of your money into one company.
Consider investing in a basket of different different stocks in different industries.
There are a number of good dividend stock opportunities for UK investors in 2025. In this post, I have shared my top 5 picks that seem to be pretty sustainable right now. However, it is important to understand that market conditions can change and companies may not always be able to pay the dividends that they advertize. For this reason, you should do your own research into the company before making any decisions.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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