The London Stock Exchange is filled with dividend stocks and income opportunities. In fact, it’s home to some of the most generous payouts in the world, with the FTSE 100 offering one of the highest dividend yields compared to other global stock market indices.
That’s terrific news for British investors seeking to build a lucrative passive income stream, especially since individual stocks from within the FTSE 100 offer even higher rewards. And looking at the most amount of money invested into UK shares on Hargreaves Lansdown’s platform, three stocks in particular are getting a lot of attention right now: Glencore, Rio Tinto, and BP (LSE:BP.).
Sadly, popularity doesn’t automatically make a stock a good investment. So investors always need to dig a bit deeper to determine both the risks and potential rewards.
Investigating the oil giant
Looking just at the dividend yield, the popularity of BP isn’t hard to understand. The dividend stock currently offers an impressive 6.6% payout to shareholders. And if the current analyst forecasts prove accurate, the oil & gas giant’s market-cap could also be due with a nice 11% bump over the next 12 months.
Behind these attractive figures is a shift in strategy to slow its transition away from fossil fuels. Environmentalists are hardly pleased with this idea. However, investors are more welcoming of the change of course given the group’s recent underperformance versus its peers.
The realignment towards fossil fuels is paving the way for more robust profit margins protecting the group’s dividend. And while the firm’s still investing in renewable projects, the budget’s been cut from $5bn to £2bn to free up unused excess cash flows and provide management with more financial flexibility.
This means faster deleveraging of the balance sheet and potentially larger increases in shareholder payouts moving forward. Needless to say, improved financial health is a positive sign. And it’s one of the leading reasons why sentiment from institutional analysts has improved significantly in 2025.
What could go wrong?
As previously mentioned, BP’s renewed focus on fossil fuels has seemingly gone down well with investors. But not all groups are happy about the decision. And it’s possible BP could face regulatory backlash as we draw closer to Net Zero targets throughout the UK and Europe.
This change in strategy also increases the revenue stream’s sensitivity to fluctuating oil & gas prices. Such commodity exposure isn’t a new threat to BP. But with trade wars, geopolitical conflicts, and production disputes among OPEC+ members, uncertainty is on the rise.
Should the worse come to pass, the group’s largely fixed costs will likely translate into thinner profit margins and lower free cash flow generation. And if this pressure becomes too much to bear, a dividend cut could emerge even with more profitable fossil fuel projects in its pipeline.
All things considered, BP’s current high yield is a reflection of the uncertainty and risk surrounding this business. It’s a similar story for Glencore and Rio Tinto, both susceptible to similar threats in the metal markets. Therefore, despite the popularity of these dividend stocks, I think there are more promising, lower-risk income opportunities to explore elsewhere.
