Unfavoured stocks yielding far more than the record-breaking UK market

Despite the unrelenting backdrop of negative news, the large-cap FTSE 100 and mid-cap FTSE 250 indices recently scaled new highs, showing that investor sentiment remains resilient.

Perhaps it isn’t so surprising as bull phases are often described as ‘markets climbing a wall of worry,’ a reference to investors putting aside bad news and moving on.

Another feature of bull markets is they see often see heathy rotations away from the leaders towards the current laggards.

With this in mind, we thought it would be a useful exercise to search for stocks that sit more than 25% below their 12-month high price, which also have a forecast dividend yield of more than 5%.

To provide some reassurance that the dividend is secure, we removed stocks where forecast earnings per share covered expected dividends by less than 1.2 times.

How reinvested dividends can compound wealth

Reinvesting dividends is an effective way to grow wealth and to benefit from compounding. By taking advantage of temporary stock price weakness and higher dividend yields, investors can boost their total return (share price return plus dividends).

Everything else being equal, a higher starting yield will provide a higher total return. Adding the starting dividend yield to expected earnings growth offers a reasonable guide to an expected total return.

Forecasts are not a reliable indicator of future performance.

Gold and silver producer Fresnillo has seen its shares advance strongly in the last few years, but they have undergone a big correction recently, leaving them 44% below their 12-month high.

As a result, Fresnillo shares are trading on a forward dividend yield close to 6%, compared with less than 3% in early 2026.

The share price fall partly reflects the correction in precious metals with gold prices falling by around a third and silver prices plummeting 50% since the start of the year.

First-half results on 5 August revealed revenues climbing 72% and pre-tax profit growing 149% to $2.1 billion, while operating cash flow more than doubled to $2.3 billion.

This allowed the board to declare a half year dividend of $0.43 per share compared with $0.23 per share in 2025, whilst maintaining a net cash position.

Dunelm hit by consumer concerns but generating lots of cash

Homewares and furniture retailer Dunelm has navigated uneven consumer confidence amid cost-of-living pressures while sentiment around the housing market has not been a helpful backdrop.

However, the company continues to outperform the broader homewares market, expanding its market share through its value-brand proposition. A debt-free balance sheet and strong cash generation allows the business to self-fund store rollouts while growing dividends.

The company also pays special dividends when average net debt falls below a threshold leverage of 0.2 times earnings before interest, tax, depreciation, and amortisation.

This was triggered in April when Dunelm topped up its 17p first-half dividend with a 25p per share special dividend.

Hilton Foods yields nearly 6% as it addresses problems

Hilton Foods has seen its share price fall from 900p to the around 600p over the last two years as the company has struggled with margin pressures in its seafood division and regulatory disruptions.

A recent strategic review is aiming to fix these issues and refocus on core meat and fresh prepared food businesses while divesting non-core assets.

The dividend yield has widened out to nearly 6% from 3.8% two year ago, reflecting share price weakness. The dividend has grown around 6% a year over the last five years.

A recent £450 million bank facility refinancing gives Hilton Foods financial headroom and could support its progressive dividend policy.