Investors looking for dividend stocks to buy are spoilt for choice in the UK. Although the passive income can never be guaranteed, there are plenty with dividend yields of more than 5% right now.
Dividend powerhouse
Online trading platform provider IG Group (LSE: IGG) is one of my favourite dividend distributors in the FTSE 250 for several reasons.
First, the yield currently stands at 5.2%. That’s far above the 3.2% that I’d get from a fund tracking the index. It’s also impressively large considering IG shares have been on an absolute tear recently, rising 43% in the last 12 months.
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Second, analysts believe this year’s payout will be covered over twice by profit. While it’s best to treat forecasts with a pinch of salt, recent numbers suggest the company is trading well. As a result of this (and my third reason), IG’s dividends should continue rising — a really encouraging sign.
Since clients trade more when share prices get volatile, an ever-present concern is that markets drift sideways for a while. This company (and its peers) are also an easy target for regulators. But a low price-to-earnings (P/E) ratio of nine still looks attractive to me.
I just need the cash to invest.
Still holding
Another stock yielding over 5% is MONY Group (LSE: MONY) — the owner of price-comparison site Moneysupermarket.com. I own a slice of the £1.2bn cap myself.
The share-price performance has been poor in the last year or so. But I’ve stayed invested for the income stream. As things stand, MONY yields a juicy 5.9%. After a lull, management also started raising dividends again in 2022.
One clear threat is the number of players in this space. This is to be expected given the huge operating margins that can be generated.
But a P/E of just under 13 arguably takes this into account. When the energy markets gets more competitive (pushing more people to search for and eventually switch provider), I think the share price will respond positively.
I’m staying put.
Under-the-radar income
A final option for solid dividends is ZIGUP (LSE: ZIG), formerly Redde Northgate. Arguably the least well known of the three, this firm specialises in vehicle rental and accident management.
Now, ZIGUP’s dividend history is pretty great but it’s not perfect. Back in 2020, for example, the payout was cut by almost 30% (to 13.1p per share).
To be fair, that year was a blip for most of us. And the Darlington-based business quickly returned to growing its total dividend. In FY25, it’s expected to be 25.9p per share.
However, it does highlight the dangers of holding a company whose fortunes can ebb and flow with the health of the wider economy. I’m also a bit wary of the amount of debt on its balance sheet.
But ZIGUP could still be a worthy addition to a diversified portfolio. At 6.7%, the yield is over double that of the FTSE 250 and goes some way in making up for the extra risk involved.
At just seven times forecast earnings, the valuation is also low for the Industrials sector and the UK market as a whole. For now, it goes on the watchlist until I have the funds to make a final decision.
