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I mainly invest in UK dividend stocks. And in addition to dividend yield, I also look for good coverage through earnings and evidence of long-term cash flow, among other measures.
But what if I invested some money in the ones with the highest returns each year and then just forgot about them?
It would surely make my headache over my stocks and Shares ISA options a little easier.
Higher yields
The following table shows the five FTSE 100 stocks with the highest expected returns at this time. I have left it out Vodafonesince it has announced a large cut for 2025.
| Stock | Recent share price |
Dividend produce (scoundrel) |
Dividend produce (next) |
| Phoenix Group Holdings |
514p | 10.2% | 10.5% |
| M&G | 204p | 9.8% | 10.1% |
| Legal and general Cluster (LSE:LGEN) |
223p | 9.2% | 9.5% |
| british american Tobacco |
2,669p | 8.8% | 9.2% |
| Aviva | 471p | 7.3% | 8.0% |
There is an immediate conclusion to this. Buying all five would put me heavily involved in the overlapping insurance and asset management businesses, covering four of the five.
British American Tobacco is the only non-financial option of the whole lot.
And something I've always considered a key part of my strategy is diversification. I certainly took great joy in that during the banking crisis. And I'll want decent diversification in case we see an insurance sector slowdown in the future.
cyclical selection
That said, I do like the sector. And I think Legal & General is the one that attracts me the most of these candidates.
Insurance can be very cyclical. And when things are going well, dividend yields like those shown in the table can look better.
Still, forecasts show that the Legal and General dividend will increase even more than that 9.5%, reaching 9.7% in 2026. However, that will largely depend on how the economy does in the coming years. And right now, the world doesn't seem like a very friendly place.
good so far
At least for now, cash flow seems to be going well. In the first half, Legal & General increased its interim dividend by 5%. And it is progressing with “a £200 million share buyback, consistent with our new capital return framework“.
The firm plans to continue increasing the dividend in the coming years, although with modest increases.
The main risk I see is the cyclical nature of the industry, coupled with very real competition. Like most of the others at my table.
something different
Much of this thinking applies to everyone else in the picture, except British American Tobacco. That big 8.8% dividend comes even as the share price is up 16% so far this year.
I don't share the fear that tobacco profits will disappear, at least not during my lifetime as an investor. But that is the main risk, without a doubt.
In reality, it is only ethical issues that would prevent me from buying tobacco stocks. But other than that, this is a dividend I would love to take advantage of for long-term income.
And it's good to see that not all of the top five are in the same business.
