I think these UK income stocks, exchange-traded funds (ETFs), and investment trusts are worth serious consideration from serious dividend investors. Here’s why.
The FTSE 100 cash machine
Today Phoenix Group (LSE:PHNX) has the fourth-highest dividend yield on the FTSE 100. At 7.9%, its yield is only topped by those of Taylor Wimpey, WPP, and Legal & General.
But unlike those first two blue chips, Phoenix’s yield hasn’t been supercharged by extreme share price weakness. The financial services giant has a long record of paying a large and growing dividend, and its yields have long topped the blue-chip average.
This in part reflects its exceptional cash generation, even during tough times. Today, its Solvency Capital Coverage Ratio is 172%, well inside its 140%-180% target. It may not protect Phoenix’s share price from falling if economic conditions worsen. But it at least means the company looks in good shape to pay this year’s expected dividends.
Over the longer term, I expect dividends here to rise steadily as demographic changes drive retirement product demand and push its profits skywards.
A discounted trust
FTSE 250-listed SDCL Energy Efficiency Trust (LSE:SEIT) offers tantalising all-round value in my book. Its forward dividend yield is 10.8%, more than triple the Footsie average of 3.3%.
The investment trust also trades at a whopping 36.8% discount to its net asset value (NAV) per share of 91.5p.
Higher interest rates have weighed heavily on SDCL’s performance of late. With inflation edging upwards again, this is a threat that remains in play.
Yet I’m still confident in the trust’s long-term potential. It invests in projects that reduce heat wastage, improve on-site power generation, and cool commercial buildings, for example. And as such, it has considerable growth potential as companies try to meet their green targets.
On the dividend front, SDCL has raised shareholder payouts at an average rate of 4.8% over the last five years.
The global ETF
Launched in March 2024, the iShares World Equity High Income ETF (LSE:WINC) doesn’t have a long record of annual growth. But it’s tipped to raise the annual payout again this year, resulting in a vast 9.6% dividend yield.
The fund is designed “to generate income and capital growth with lower volatility than developed market equities“. To achieve a more stable performance than 100% share-based ETFs, some of its capital is also tied up in cash and government bonds.
That’s not to say that the fund’s fully protected from choppiness, however. Weighty exposure to cyclical sectors like information technology and financial services leaves it exposed to economic downturns.
However, it aims to counterbalance these with holdings of defensive shares like utilities, healthcare, telecoms, and consumer goods shares. As an investor, it’s also worth remembering iShares World Equity’s large contingent of high-growth shares (like Nvidia and Apple) also create potential for robust long-term dividend growth.
