Income has a strong appeal to many investors and I am one of them. Fortunately, lots of UK dividend stocks offer attractive yields. Here are five I would consider adding to my portfolio.
1. Legal & General
The insurer and financial services company Legal & General is one of the UK dividend stocks I would consider buying and holding. Its 6.4% dividend yield is attractive to me, but I also like its future prospects. The company has set out plans to keep raising the dividend in the coming three years. Sustained strong business performance could see the dividend continue to rise for years to come.
But dividends are never guaranteed for any share. Risks with L&G include any future economic downturn hurting demand for financial services products.
2. Telecoms giant
The telecoms company Vodafone is also currently yielding 6.4%. With its large international footprint, powerful brand, and extensive customer base, I think Vodafone is set to continue raking in mammoth revenues. That can help to support the dividend.
The company’s debt is a risk, though. Telecom networks are very expensive to build and maintain. That could eat into profits, as could interest payments to service the company’s debt pile.
3. UK dividend stocks: Imperial Brands
Tobacco shares are among the highest yielding UK dividend stocks. Strong cash generation helps to fund dividends. Imperial Brands owns brands such as John Player Special and Rizla. The Bristol-based company currently yields 8.6%, which I find highly attractive.
Imperial cut its dividend last year and future cuts are a risk too. Cigarette consumption is declining in key markets, which could hurt both revenues and profits. Weighed against that, though, the high yield still looks tempting to me.
4. High street retailer
Another of the UK dividend stocks I would consider adding to my portfolio is Tesco. The supermarket giant offers a dividend yield of 4.2%. I like the company because of its large store estate, fast growing digital sales and proven retail expertise. I also think its property portfolio could create more value over time, as UK land prices continue to rise.
Digital sales are part of what attracts me to Tesco, but the growth of online commerce is also a risk in my view. As deliveries involve substantial costs, online sales growth could eat into Tesco’s profit margins.
5. GlaxoSmithKline
My fifth pick among UK dividend stocks I would consider adding to my portfolio now is pharma company GlaxoSmithKline. A coming split has focussed attention on the company’s performance, and there is a risk the dividend will be cut as a result. But for now, GSK yields 5.5%. It owns iconic brands such as Centrum and Sensodyne, which helps give it pricing power.
Building a portfolio of UK dividend stocks
Will there be a bid for Tesco like we’ve seen for Morrisons? Will the GSK split create more value for shareholders? Could Imperial’s focus on five key cigarette markets help boost sales? I don’t know. That’s why I’ve focussed on a diversified set of UK dividend stocks across different business sectors. I recognise that each has risk as well as potential upside. That is why I would spread my share selections, to help reduce my risk.
