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With inflation rising, dividend paying stocks can serve as a nice alternative to bond markets for investors searching for income.

In the UK, equity income funds have long been out of favour with investors pulling billions out of these strategies in the last two years. Due to the pandemic, many companies on the stock market had to cut their payouts to shareholders.

According to Link, for example, dividends paid to investors fell 44% to £61.9bn in 2020 as two-thirds of companies cut or cancelled dividends.

Best FTSE 100 dividend paying stocks

But the summer has seen a return of dividends and even increases. Total payments by FTSE 100 companies are expected to grow by 25% this year to £76.9bn, according to AJ Bell, meaning the index is set to yield 3.7%. Mining company Rio Tinto (LON:RIO), for example, in July declared a special dividend and an interim dividend of $3.76 per share, which was a 21.7% increase from its prior dividend. Diageo (LON:DGE) was also among the businesses to increase dividends.

The highest yielding players are in the tobacco and mining industry. Imperial Brands (LON:IMB) and British American Tobacco (LON:BATS) are popular stocks held in equity income funds. Imperial Brands has a dividend yield of 8.9%, while BAT has a dividend yield of around 7.8%. But the stocks have big headwinds as less people smoke and ESG-minded investors want to divest.

In mining, there are several options including BHP Group (LON:BHP), Rio Tinto, Armchair Trader pick Glencore (LON:GLEN) and Anglo American (LON:AAL).

According to AJ Bell’s latest Dividend Dashboard, just ten companies are expected to generate 87% of 2021’s dividend increase, with Rio Tinto and BHP the top two, with expected yields of 12% and 9.2%, respectively.

Among the top ten stocks that are forecast to pay £40.2bn in aggregate this year are also Unilever (LON:ULVR), Royal Dutch Shell (LON:RDSB), GlaxoSmithKline (LON:GSK) and BP (LON:BP.), which we have recently added to our picks.

But the highest yielding stocks may not always be the best long-term investment, AJ Bell has previously warned.

“Often defending a high yield can be a burden for a firm, as it sucks cash away from vital investment in the underlying business, or can be a sign that the company is in trouble and investors are demanding such a high yield to compensate themselves for the (perceived) risks associated with owning the equity,” AJ Bell noted.

Dividend aristocrats, which have a dividend growth track record, include companies like Ashtead (LON:AHT), Intermediate Capital (LON:ICP) and London Stock Exchange (LON:LSEG), which are forecast to grow their dividends significantly, by 17.8%, 12.9% and 14%, respectively, in 2022.

High yield dividend paying ETFs

But for those who do not want to take on the burden of single stock selection, there are also ETFs that can provide wide exposure to dividend stocks. These can provide international and sectoral diversity.

These include WisdomTree’s Global Quality Dividend Growth Ucits ETF, Europe SmallCap Dividend Ucits ETF and even Emerging Markets SmallCap Dividend Ucits ETF.

For investors who might require an exposure to the US stock market, there is also the WisdomTree US High Dividend fund. Other providers’ funds include Vanguard’s High Dividend Yield Index ETF, the iShares Core Dividend Growth ETF and the ProShares S&P 500 Dividend Aristocrats ETF.

Here are some high-yield dividend paying ETFs

Product NameExchange TickerListing Currency
WisdomTree Global Quality Dividend Growth UCITS ETF – USD
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
WisdomTree Global Quality Dividend Growth UCITS ETF – USD Acc
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
WisdomTree US Quality Dividend Growth UCITS ETF – USD
AJ Bell Youinvest | Charles Stanley Direct | EQi
WisdomTree US Quality Dividend Growth UCITS ETF – USD Acc
Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
WisdomTree Eurozone Quality Dividend Growth UCITS ETF – EUR
Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
WisdomTree Eurozone Quality Dividend Growth UCITS – EUR Acc
Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi


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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Selin Bucak

Selin Bucak

Selin Bucak is a freelance journalist based in Paris. Previously she was editor of Private Equity News and before that worked as news editor on Citywire Wealth Manager.

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