These UK dividend stocks yield 10% or more. Should I buy?

These dividend stocks have some of the highest yields in the FTSE 100. Edward Sheldon looks at whether they’re worth buying for his portfolio.

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Right now, it’s not hard to generate income from shares. On the London Stock Exchange, there are many dividend stocks with monster yields.

Here, I’m going to look at three UK stocks with yields of 10% or more. Are these shares worth buying for my portfolio?

Eye-catching income

First up is tobacco giant British American Tobacco (LSE: BATS). It’s forecast to pay out 239p per share in dividends for 2024, which equates to a prospective yield of about 10% today.

This yield is certainly eye-catching. The stock is also very cheap right now. Currently, it has a P/E ratio of just 6.5 (about half the market average).

However, zooming out and looking at the big picture, I’m concerned about the backdrop here. Looking ahead, tobacco companies are likely to face huge headwinds as governments crack down on cigarettes.

This could lead to share price weakness and/or lower dividends in the future.

I prefer to invest in companies in growth industries and therefore have tailwinds behind them. So I’m going to leave this high-yielder alone.

Double-digit yields

Next, we have Phoenix Group (LSE: PHNX). It’s one of the largest long-term savings and retirement businesses in the UK with around 12m customers and £270bn assets under administration.

For 2024, analysts expect Phoenix to pay out 54.4p per share in dividends. That translates to a whopping 10.9% yield at today’s share price.

Now, a dividend yield of this magnitude can often be a sign that a cut is coming. Yet looking at the company’s cash flow, I think the payout is sustainable in the near term. Earlier this month, it said it had delivered about £1.5bn of new business long-term cash generation in 2023.

One big risk here however, is debt. Currently, JP Morgan has a price target of 435p and an ‘underweight’ rating on Phoenix on the back of debt concerns.

Given the leverage here, I’m happy to pass on this stock, as interest on debt can impact a company’s ability to pay dividends.

A big bonus payout in 2024

Finally, we have banking giant HSBC (LSE: HSBA). It’s forecast to pay out 80.4 cents per share for 2024, which equates to a yield of about 10.2% at today’s share price.

I don’t expect the yield to remain at this high level. That’s because around a quarter of this payout is going to be a one-off bonus linked to the sale of the company’s operations in Canada.

Still, the dividend yield could be attractive even when it normalises. For 2023, analysts are expecting total dividends of 63.1 cents, which represents a yield of an attractive 8% today.

Given this bumper yield, and the fact that HSBC has been making moves to shift its focus towards high-growth areas such as Asia and wealth management, I’m quite interested in this stock.

Assuming we don’t have a major global recession, I think it could potentially be a good long-term investment for me.

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.

Ed Sheldon owns shares in London Stock Exchange. The Motley Fool UK has recommended British American Tobacco P.l.c. and HSBC Holdings. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. 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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