I invest mostly in UK dividend shares. And as well as the dividend yield, I also look for good cover by earnings and evidence of long-term cash flow, among other measures.
But what if I just put some money into the ones with the biggest yields each year, and then simply forget about them?
It would sure make my head-scratching over my Stocks and Shares ISA choices a bit easier.
Biggest yields
The following table shows the five FTSE 100 stocks with the biggest forecast yields at the moment. I’ve left out Vodafone, as it’s announced a big cut for 2025.
| Stock | Recent share price | Dividend yield (cur) | Dividend yield (next) |
| Phoenix Group Holdings | 514p | 10.2% | 10.5% |
| M&G | 204p | 9.8% | 10.1% |
| Legal & General Group (LSE: LGEN) | 223p | 9.2% | 9.5% |
| British American Tobacco | 2,669p | 8.8% | 9.2% |
| Aviva | 471p | 7.3% | 8.0% |
There’s one immediate take from this. Buying all five would put me very heavily into the overlapping insurance and asset management businesses, covering four out of the five.
British American Tobacco is the only non-finance pick in the whole lot.
And one thing I’ve always seen as a key part of my strategy is diversification. I was very glad of it in the banking crash, for sure. And I’ll want some decent diversification in case we see an insurance sector downturn in the future.
Cyclical pick
Saying that, I do like the sector. And I think Legal & General is the one that attracts me the most of these candidates.
Insurance can be very cyclical. And when things are going well, dividend yields like those in the table can look their best.
Still, forecasts show the Legal & General dividend rising even further than that 9.5%, reaching 9.7% in 2026. That will, though, depend a lot on how the economy goes in the next few years. And right now, the world does not look like a very friendly place.
Fine so far
For now, at least, the cash flow seems to be going fine. At H1 time, Legal & General raised its interim dividend by 5%. And it’s progressing with “a £200m share buyback, consistent with our new capital return framework“.
The firm plans to keep lifting the dividend in the next few years, though with modest rises.
The main risk I see is that cyclical nature of the industry, coupled with a very real amount of competition. Like, from most of the others in my table.
Something different
Much of this thinking applies to the others in the table, except for British American Tobacco. That big 8.8% dividend comes even with the share price up 16% year-to-date.
I don’t share the fear that tobacco profits will disappear, at least not in my investing lifetime. But that’s the main risk, for sure.
It’s really just ethical issues that would keep me from buying tobacco shares. But other than that, this is a dividend that I’d love to snap up for some long-term income.
And it’s nice to see that not all the top five are in the same business.
