One of the most appealing aspects of UK shares is their consistent dividend culture. While US companies often prioritise buybacks, many British firms favour rewarding shareholders through regular cash returns.
For long-term income investors, this makes UK shares a more attractive option.
With dividend yields often higher than global counterparts and a track record of decades-long payouts, it’s easy to see why income-focused investors look to the FTSE 100. But which UK shares are reliable enough to buy now and potentially hold until 2035?
Here are three candidates that stand out, each offering strong income prospects, albeit with a few caveats.
British American Tobacco
Tobacco may not be a growth industry anymore, but British American Tobacco (LSE: BATS) remains a cash-generating machine. The shares currently yield 6.2% and, impressively, the company has grown its dividend for over two decades.
Operating cash flow sits at a robust £8.6bn, supported by a 12% net margin and a reasonable debt-to-equity ratio of 0.74. For an income investor, that’s a solid foundation.
However, there are risks. The payout ratio of 177% suggests dividends are not well-covered by earnings, and the price-to-earnings (P/E) ratio of 28.7 hints at a potentially overvalued stock. Additionally, regulatory tightening in key markets and the cost of shifting toward next-gen products like vapes and nicotine pouches may weigh on margins.
While it may face regulatory challenges going forward, I still think it’s a top stock to consider for income.
Aviva
Insurance firm Aviva (LSE: AV.) offers a 5.6% dividend yield, backed by 6.9% annual growth and five consecutive years of increases. Its strong balance sheet and adequate debt coverage suggest this payout’s relatively secure.
Still, there are some areas for improvement. Profitability’s low, with an operating margin of just 3.2% and a return on capital employed (ROCE) of 3%. Most concerning is a 38% decline in earnings growth, which raises questions about long-term sustainability.
With rising interest rates and fierce competition in the UK insurance sector, it may have to cut dividends if earnings don’t stabilise. Still, due to its heavily established position in the UK financial sector, I think it’s a solid and reliable option to consider.
HSBC Holdings
Banking giant HSBC‘s the most global of the three, and it brings a blend of growth and income. Shares yield 5.3%, supported by 20 years of uninterrupted payments and a 5.6% dividend growth rate. The stock trades at a modest P/E ratio of 11.3, and its 11% return on equity (ROE) suggests efficient use of capital.
Performance-wise, shares are up 177% over the past five years, which is rare for a large-cap dividend payer. However, revenue and earnings have dipped recently, and the group carries a high debt load. Risks include over-exposure to Asia, where political and economic uncertainty remains high and potential credit losses in the event of a recession.
Long-term, stable income
Each of these UK shares offers a different flavour of income investing. British American Tobacco has an excellent dividend track record, Aviva’s a stable and reliable business, and HSBC delivers a mix of growth and income.
None are risk-free, but for patient investors seeking passive income until 2035, these stocks are worth serious consideration. As always, diversification’s key.
