Big dividends: The highest yielding stocks on UK stock market

One of the UK stock market’s key attractions is the rich bounty of dividends on offer. There are companies with a history of returning copious amounts of money to shareholders and that makes the UK a fertile hunting ground for income investors.

At a headline level, the FTSE 100 yields 3.3% based on forecast payments. While 3.3% is less than you’d get from a best-buy cash savings account, if you do a bit of digging it is possible to get twice that amount for certain stocks. You could go even higher by looking at names in the FTSE 250 index.

Before we discuss the highest-yielding names on the market, it’s important to remember that companies offer no guarantees to pay dividends. They can cut or cancel them at any time.

Also, these are only estimates, and you might get less money in dividends than you first thought. It’s important to have a diversified portfolio so you are not reliant on one or a handful of stocks to do the heavy lifting.

Top dividend yields in the FTSE 100

Life insurance providers Legal & General and Standard Life, (formerly known as Phoenix) are the top yielding stocks in the FTSE 100, the former offering a 8.2% dividend yield. For example, if you bought £10,000 worth of shares in Legal & General, you would expect to collect £820 in dividends over the following year.

The life insurance industry collects premiums from customers every month and invests that money in lower-risk assets. The goal is to make a profit and have enough money to settle insurance claims.

There isn’t a big need to reinvest money in a life insurance business in the way you would expect from a manufacturing firm opening a new factory or an engineer upgrading its equipment. As such, life insurance firms can find themselves with surplus cash and that helps to fund generous dividends.

It would be fair to suggest the bulk of an investor’s returns from a stock like Legal & General would come from dividends rather than capital growth. That’s evident if you look at a five-year share price chart where the stock mostly traded in a narrow, sideways range.

Imperial Brands joins the list

Imperial Brands joins fellow tobacco company British American Tobacco on the top payers list with a prospective dividend yield of 6.2%. Despite pressure from declining smoking rates, strong pricing power protects margins which supports healthy cash flow generation and dividend payments. In addition, tobacco firms frequently use extra cash to buyback their own shares. 

Top dividend yields in the FTSE 250

The highest yielding stock among mid-cap companies on the UK market is Lancashire, a specialty insurer focusing on risks in areas including property, energy, marine and aviation.

It is always worth investigating yields above 9% just to make sure there isn't something odd going on.

In the case of Lancashire analysts are projecting another year of special dividends on top ordinary dividends for the property and casualty insurer, which explains the relatively high yield. This follows two consecutive years of special dividends.

As the name suggests, special dividends can not be replied upon to be paid every year. Significant storm-related damage in 2026 could threaten a special dividend from Lancashire in 2026. 

Other generous dividend payers in the FTSE 250 include various investment trusts in the renewable energy and property space.

One word of warning. A high yield can sometimes be the result of a big drop in the share price, where the market is worried about something. If the shares are falling because the market thinks earnings aren’t going to be as strong as previously thought, that raises the prospect of a potential dividend cut down the line. In this situation, a weak share price and a high dividend yield can be a red flag.