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I’d invest £1,000 in these top UK dividend stocks for passive income today

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Whether I’ve got an existing portfolio of dividend stocks or am just starting out, investing £1,000 is rarely a bad thing. It allows me to put a good chunk of money to work. Hopefully, from good decision-making I can look to generate passive income at a rate that’s higher than other alternatives. With that in mind, here are some of the areas that include the top dividend stocks right now, in my opinion.

What makes a top UK dividend stock?

Before I go straight into specifics, I want to clarify what I mean when referring to a top UK dividend stock. It’s not just the stocks that offer the highest dividend yield. This is because a high yield isn’t the only factor that goes into my decision-making.

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Other factors include the dividend cover, the history of past dividend payments and my personal outlook on the company. For example, I might consider a relatively-low-dividend-yield stock to be a top contender if the company is likely to make a high profit this year and pay out a generous future dividend. 

On the flipside, I’m unlikely to put in my category of top UK dividend stocks a firm that has a falling share price and a falling level of dividend cover. Even if the current yield is 10%+, I’d be concerned here.

Where I’d look to invest now

Now that I’ve got a clearer picture of what exactly I’m looking for in a top UK dividend stock, I can move forward. At the moment I’m keen on companies within investment banking and financial services.

I’d be selective and avoid high street banks due to the tough 2020 they saw. However, I’d look towards asset managers and insurance providers. Examples here include M&G, Schroders and Standard Life Aberdeen. I like these companies because the dividend yield is higher than average. At the same time, the business models are robust and so liquidity shouldn’t be an issue in paying out dividends going forward. 

The downside of targeting this industry is that they are all exposed to the potential of another stock market crash. If investors pull out funds from these providers then assets under management (and fees) would fall. However, with the FTSE 100 pushing past 7,000 recently, I see this risk as small.

Another area in which I think I can find top UK dividend stocks is utilities. I see them as being robust and sustainable, having made it through the pandemic relatively unscathed. Consumers may shop around more for a provider, but the industry in general is a necessity. 

To this end, I like SSE, United Utilities and Severn Trent. The lowest yield here currently is circa 4%, so above the FTSE 100 average of 2.9%.

I do need to watch out for any potential dividend reduction due to large capital expenditure or development projects. These can be common in the industry and can drain funds that could be otherwise used for dividend payments.

Overall, the above companies represent my top UK dividend stocks to look to buy at the moment with my £1,000.

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jonathansmith1 has no position in any of the shares mentioned. 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.

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