Buying high dividend stocks can be a great way to transform an investor’s wealth. The large passive income they provide can help fund a lavish lifestyle today. Or they can be reinvested back into the stock market to deliver spectacular compound returns.
Dividend shares across the FTSE 100 and FTSE 250 have fallen in recent sessions. And so the gigantic yields of many passive income shares have become even more attractive.
The following top stocks now offer forward yields above 9%. It means that a £20,000 lump sum invested equally across them could provide a £1,870 passive income over the next 12 months.
Here’s why I think they’re worth serious consideration by savvy investors.
Legal & General Group
Dividend yield: 9.4%
Legal & General (LSE:LGEN) looks in great shape to continue paying above-average dividends to its investors. With a Solvency II ratio of 224%, it has one of the strongest balance sheets in the UK financial services sector.
However, investors have given the company’s new dividend policy announced last week a big thumbs down. In it, chief executive António Simões — who’s been steering the ship since January — announced plans to grow shareholder payouts by 2% from next year to 2027.
This is down from a previous target of 5%. Accordingly, Legal & General’s share price has plummeted. I think the market may be ignoring the bigger picture here however.
First off, the company plans to offset lower dividend growth with share buybacks, starting with a £200m programme this year. Putting the brakes on payout growth also gives the Footsie firm more money to invest for growth which, in turn, could lead to greater share price appreciation and dividend increases over the long term.
I’m particularly encouraged by Legal & General’s decision to focus more closely on the massive pension risk transfer (PRT) market. It intends to write up to £65bn of PRT business in the UK by 2028 alone. There’s also considerable opportunity to make profits in the US, Canada and the Netherlands.
Higher-than-normal interest rates are a problem for Legal & General’s asset management balance. But, on balance, I think this is a top dividend stock to consider today.
Alternative Income REIT
Dividend yield: 9.3%
Purchasing real estate investment trusts (REITs) also has considerable investment appeal. These financial vehicles — of which I already hold several in my portfolio — have to pay 90% of annual rental profits out by way of dividends.
Alternative Income REIT (LSE:AIRE) is another I’m considering buying today.
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I like the fact this property stock invests its cash across a wide range of different assets (like care homes, petrol stations, flats and power stations). This gives it the means and the confidence to pay large dividends at all points of the economic cycle.
I also think this trust has significant scope for share price appreciation. At current prices, it trades at a 17% discount to the net asset value (NAV) of its property portfolio.
Alternative Income could begin making up this difference as interest rates are cut, presumably over the summer. But remember that any easing of Bank of England policy remains just speculation at this point. If rates fail to budge, this could cause the REIT’s share price to weaken further.
