With £5,000, 3 top dividend stocks to buy now

Here are three FTSE 100 income shares our writer is currently considering as dividend stocks to buy now for his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Tired woman sleeping on London underground

Image source: Getty Images

Dividends are an important source of passive income for many investors in UK shares. So it can be exciting to find FTSE 100 shares paying high yields. Those large companies feature on my watchlist of dividend stocks to buy now for my portfolio.

If I wanted to invest £5,000 into UK dividend stocks today, here are three I’d consider buying. I’d split the money evenly across them to reduce my risk through diversification.

Supermarket favourite

While its shops may look similar, Tesco isn’t really the company it was five years ago.

Tesco has now firmly put in the past an earlier accounting scandal that dogged it for some years. It has sold its significant Asian operations, allowing it to focus more on its key markets of the UK and eastern Europe. It has also seen a surge in demand for online shopping, making online sales more important to the business than ever before.

I don’t think that is all positive. For example, the delivery costs associated with online orders could dent profits. But on balance, I feel the company is focussed on strengthening its core business. The Asian sale also allowed it to improve its balance sheet, as well as returning cash to shareholders.

The supermarket giant yields 4.2% and its interim dividend jumped 20% from last year. I rank it among the top dividend stocks to buy now.

Top dividend stocks to buy now: BAT

Tobacco company British American Tobacco could also do with improving its balance sheet, in my view. Its £40bn of net debt is a risk I don’t like, so I was pleased to see that the company expects to reduce its leverage this year.

Meanwhile, I see a lot to like in this 7.5% yielding company. Its tobacco business is a cash generation machine, which allowed it to increase dividends again this year. With over two decades of annual increases, that wasn’t a surprise. But a dividend is never guaranteed, so a raise is always welcome in my book.

With iconic brands such as Lucky Strikes and a growing footprint of non-cigarette tobacco products, the company has so far been able to manage a decline in smoking in developed markets while raising its dividend. There’s always a risk that can’t continue, but right now I continue to like BAT for its dividend potential.

7%+ yield in financial services

BAT isn’t the only 7%+ yielding name on my list of UK dividend stocks to buy now. I would also consider the financial services provider M&G.

Like BAT, the company increased its dividend this year and it currently yields 7.9%. The company’s well-known name should help it continue to attract customers in its core market. With both a retail and commercial customer base, I think M&G offers broad exposure to investment management. That could also be a risk, though, if the UK economy worsens, for example due to delayed reopening or a resurgent pandemic.

Along with my other choices for allocating the £5,000, I’d consider buying M&G shares today for their income potential.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco and Tesco. 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.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

With a spare £500 I’d buy these UK shares

A financial services giant, a FTSE 250 distributor, a FTSE 100 tech stock, and a gold miner are on the…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I buy this defensive FTSE 100 stock for growth and returns?

This Fool takes a closer look at a FTSE 100 stock to see if it could boost his holdings via…

Read more »

Young female analyst working at her desk in the office
Investing Articles

I robbed Mr Market of this cheap FTSE stock!

This FTSE 250 stock has crashed by almost 30% in six months. But I recently bought into this battered business…

Read more »

Mature people enjoying time together during road trip
Investing Articles

3 reasons I’m backing NIO shares to soar!

NIO shares have bounced up and down this year. But where will the share price go next? My bet is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Up 300%, is the Hurricane Energy share price an opportunity too good to miss?

This Fool looks at why the Hurricane Energy share price has soared in the past 12 months. Should he buy…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

The BT share price crashes 20% in a month. Buy now?

The BT share price has crashed by almost a fifth since coming close to £2 on 12 July. After this…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How I’d invest £1,000 in growth shares today to target £5,000 in a decade

Our writer reckons he could do well by choosing the right growth shares today and holding them in his portfolio…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How passive income from stocks can speed up early retirement

By investing patiently over the years, buying quality shares has given me enough passive income to retire 10 or even…

Read more »