Recently, I’ve been on a mission to build up a few second income streams. One way I’ve been doing this is by buying UK shares with high dividend yields.
I believe this is one of the easiest ways to start generating a steady passive income stream. By investing in stocks that pay attractive yields and compounding my returns through reinvestment, I aim to set myself up for a comfortable retirement.
The average yield on the FTSE 100 is around 4% but I’ve found two shares that pay out far more than that. At over 7% each, I reckon dividend-hungry investors should consider buying these two shares today!
Imperial Brands
My first choice is Imperial Brands (LSE: IMB). The 100-year-old tobacco giant offers an inviting 7.58% dividend yield. That’s the sixth-highest on the Footsie.
But the yield isn’t the only thing about the firm to impress me lately. Tobacco isn’t exactly a popular industry these days but Imperial is working hard to keep shareholders happy. While cigarettes remain its core money-spinner, the firm’s had great success with its next-generation products (NGP). These include tobacco-alternative brands Pulze and Blu e-cigarettes.
In half-year results posted on 15 March, the firm revealed a 16.8% growth in NGP brands and a 2.8% increase in adjusted operating profit.
But of course, it’s tobacco. I get it – it’s a dying industry. New laws are being implemented to limit sales to new customers in the UK. Eventually, the sale of cigarettes will be phased out completely. But for whatever reason, people seem to like smoking and if it can be done healthily, then I support that goal.
Naturally, Imperial has its bottom line in mind but at least it’s doing something to address the health concerns. If I can support that while also benefiting from the dividends, then I see it as a win-win. For those opposed to tobacco, Legal & General is another great option with an even more impressive 8% dividend yield.
HSBC
Another top dividend-paying favourite of mine is Europe’s largest bank by assets, HSBC (LSE: HSBA). The company recently offloaded its business in Argentina for a $1bn loss, after inflation in the struggling South American country hit 276%. The sale follows the closure of its retail banking operations in Brazil in 2015, as the bank refocuses on faster-growing markets in Asia.
While the loss will hurt the bank’s first-quarter results in 2024, I think it’s the best long-term decision.
With that issue nipped in the bud, the bank can now focus on the next task at hand – appointing a new CEO. Last month, current CEO Noel Quinn announced a surprise early retirement and will step down in April next year. During his five-year tenure, Quinn oversaw the sale of businesses in the US and Canada, further increasing the company’s focus on Asia. He also declined proposals from major shareholder Ping An to separate its Asia business into Hong Kong.
What this means for the future of the bank remains to be seen. But for now, it continues to pay a handsome 7% dividend and I see no reason for that to change. Payments have increased and become more consistent since Covid, with forecasts predicting a yield of 7.3% in the next three years.
