3 UK stocks to buy with dividend yields above 7%!

Dr James Fox details three UK stocks paying dividend yields above 7%. But are these shares worth buying, or are they investments to avoid?

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UK stocks are a great place to look for strong dividend yields. The index isn’t widely loved by international investors, and lower share prices tends to result in higher dividend yields.

However, when investing for dividends, it sometimes pays to be wary of big yields — it can reflect concerns about the company’s near-term prospects.

So today I’m looking three high-yielding dividend stocks — all above 7%. Are they stocks to avoid, or stocks to buy? Well, here’s a spoiler, I’ve either bought more of these stocks, or I’m looking to top up.

For me, they’re all buys after stocks tanked in March.

Legal & General (LSE:LGEN) is the British multinational financial services and asset management company. It currently trades with a price-to-earnings ratio of just 6.2 — around half the FTSE 100 average — and offers an 8.1% dividend yield.

The stock pushed downwards in March as concern spread about the health of the financial sector following the collapse of Silicon Valley Bank (SVB). However, it appears that the fear was almost entirely unwarranted.

Having recovered slightly, the stock is now down 7% over a month. But there’s no logical explanation for this. The firm recently announced that earnings per share had risen 12% to 38.33p over the 12 months to 31 December.

Meanwhile, over the past year, the the company’s solvency II coverage ratio rose to 236% from 187%. The investment arm of the business underperformed last year, and that’s a concern. But it’s a well-managed business offering one of the best yields on the index.

Phoenix Group

Phoenix Group (LSE:PHNX) is another dividend big hitter. The stock offers a 9.3% dividend yield — one of the biggest on the index.

It’s the UK’s largest long-term savings and retirement business, and has been performing well despite a challenging macroeconomic environment. Adjusted operating profits pushed upwards to £1.24bn, from £1.23bn in 2021. However, assets under administration fell to £259bn from £310bn over the last year — that’s going to concern investors and I’d like to see this figure tick upwards.

The company has specialised in being a traditional closed-book consolidator. It’s a business model that has served it well, providing resilience in testing times. But now the company also has growing consumer brands including as Standard Life and SunLife as it looks to engage with its target audience — I think there’s a bright future ahead.

Aviva

Aviva (LSE:AV.) surged on 9 March when it reported a better-than-expected 35% rise in annual operating profit and announced a £300m share buyback.

But this was short-lived. The next day, fear spread through financial markets as SVB collapsed. The stock fell, and is now down 9% over a month, despite impressive results.

Ironically, Aviva shares also tanked along with the sector amid fears of unrealised bond losses and liquidity issues. That was just one day after the company highlighted that its solvency ratio stood at 212% — far above the required value of 150%.

I appreciate that insurance is something of a saturated market, and this could impact growth. But once again, this is a strong and, to some investors, boring stock. It offers a very strong 7.5% dividend yield and some share price growth — although I’m buying the dip and anticipating some upward movement.

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 assessed. Consider taking independent financial advice.

James Fox has positions in Aviva Plc, Legal & General Group Plc and Phoenix Group Holdings Plc. The Motley Fool UK has no position in any of the shares mentioned. 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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