At the start of a new year, when many people are reviewing their personal finances, income investors often look for promising dividend shares to add to their portfolios. And for good reason, as choosing the right stocks from day-one can turn an otherwise average year into one to celebrate.
With that in mind, here are three of the most appealing UK dividend shares to consider for a ‘to-buy’ list in 2026.
Legal & General
Legal & General (LSE: LGEN) is particularly appealing to income investors due to its stellar 9% forward dividend yield — more than double the FTSE 100 average. Not only that, it’s backed by almost 20 years of uninterrupted increases (barring the 2008 financial crisis).
Diversified across pensions, asset management and insurance, it generated £1.6bn core operating profit in 2024, up 6%. Critically, it has a Solvency II surplus supporting £5bn capital returns through 2027 via dividends and buybacks.
The risk? Further interest rate cuts could squeeze margins on annuities and investments, hitting profitability. But with future cash flow estimates putting the stock at 57% below fair value, there’s a good chance of growth this year.
There’s been much talk about how falling interest rates could impact finance stocks, but if there’s one I’m still confident on, it’s Legal & General.
Diageo
With a reliable dividend yield around 4.5%, backed by more than 25 years of consecutive increases, Diageo (LSE: DGE) seems like a dream for income investors. Plus, it offers defensive stability via popular brands such as Johnnie Walker, Guinness, and Smirnoff sold in 180 countries.
But after a 55% drop from peak prices, it now looks heavily undervalued, trading at a forward P/E of 12-13. Persistent weakness in US spirits consumption from GLP-1 drug-reduced demand has hurt profits, along with tariffs. However, growing demand elsewhere may help mitigate this risk.
New CEO Sir Dave Lewis (ex-Tesco) has already initiated a recovery, with brand revitalisation and $625m of cost savings under the ‘Accelerate’ plan.
A strong spirits portfolio and premiumisation provide pricing power and moat against rivals.
City of London Investment Trust
The City of London Investment Trust (LSE: CTY) is an ever-popular choice for income investors with its unmatched 59-year streak of rising dividends. In 2025, they reached 21.30p per share, up 3.4% from the previous year.
With a prospective yield of around 4.4%, it’s decently ahead of the FTSE All-Share‘s 3.5% average.
Managed by veteran Job Curtis since 1991, it invests mainly in large-cap UK equities for growth in income and capital, blending value stocks with dividend growers while trading at a slim 1%-2% discount to net asset value (NAV).
One risk is that its high gearing amplifies potential losses in a UK market downturn, as its equity-focused holdings lack overseas diversification. This is a key reason why any stock should only be considered as part of a broader portfolio.
But with manageable quarterly payouts and impressive revenue reserves, City of London remains one of the most sustainable dividend shares I know — even in downturns.
Final thoughts
The news of global conflicts and a weak economy looks bleak. But there’s still a wealth of opportunity out there for savvy income investors.
A sufficiently diversified portfolio of sustainable dividend shares remains one of the most popular ways to plan for retirement or build generational wealth.
