High dividend shares can be a great way to generate passive income. That said, not all high dividend stocks turn out to be good investments. Often, a high yield is actually a sign the company is in trouble.
Here, I’m going to highlight two UK high dividend shares I’d buy for my own portfolio today. Both offer attractive yields but also have reasonable long-term growth prospects.
A UK high dividend share with a 6.2% yield
Legal & General Group (LSE: LGEN) is my favourite stock in the UK high dividend space. It’s a diversified financial services company that offers solutions in relation to retirement, investment management, and insurance. It recently announced it would be paying 17.57p per share in dividends for FY2020. At the current share price, that equates to a high dividend yield of 6.2%.
Unlike many other high dividend stocks, LGEN has decent growth potential. The company should benefit as businesses move to de-risk their defined benefit pension plans. Meanwhile, its investment management business should deliver higher profits as markets (and assets under management) rise over time. As for growth of the dividend, the company recently said it expects to maintain its “progressive” dividend policy over the long term.
As with any dividend stock, there are risks to consider. One is the stock’s beta of 1.56. Beta is a measure of volatility. A reading of 1.56 means it’s considerably more volatile than the market as a whole. Given this higher level of volatility, the stock may not be suitable for all income investors.
Overall though, I think there’s a lot to like about Legal & General Group. With the stock trading on a low forward-looking price-to-earnings (P/E) ratio of just under 10, I think it’s a great time to be buying this high dividend stock.
A small-cap high-yield stock
Another UK high dividend stock I hold in high regard is Urban Logistics REIT (LSE: SHED). It’s a small-cap real estate company that owns a portfolio of strategically-located logistics warehouses rented out to retailers and delivery companies.
For the financial year ending 31 March, analysts expect Urban Logistics to pay a dividend of 6.82p per share. That equates to a yield of about 4.5% at the current share price. For the following year, analysts expect a payout of 9.23p per share, which equates to a yield of 6.2%.
Urban Logistics looks well-placed to benefit from the online shopping boom. That’s because its ‘last-touch’ warehouses enable e-commerce businesses to get their goods to consumers more efficiently. The company’s most recent half-year results (the six months ended 30 September 2020), were certainly impressive, with net rental income up 62%.
After just six years in business and with a market-cap of just £380m, the company doesn’t have a long-term track record. It’s not a well-established FTSE 100 firm like Legal & General, so dividends could be inconsistent as the company grows. Generally speaking, small-cap stocks like this tend to be higher risk than large-cap stocks.
That doesn’t put me off though. I think this under-the-radar stock could be one of the best high dividend shares on the UK market right now.
Edward Sheldon owns shares in Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.