Like a lot of investors, I find the income prospects of shares with big dividends attractive. I am eyeing these five UK dividend shares to buy now for my portfolio. Each yields more than 6%.
Abrdn
Asset manager Abrdn (LSE: ABDN) offers financial services in a number of markets internationally. The basics of the money management business attract me. Customers tend to invest fairly substantial sums, so even modest seeming commissions can soon add up. Meanwhile, the investment manager can benefit from economies of scale, spreading costs like research across a wide customer base.
But financial services is a competitive area, which can put pressure on profit margins. Abrdn had struggled to keep clients in the past several years and I reckon its odd name may not help attract potential customers. Nonetheless, the underlying business is substantial and now seems to be in recovery mode. Last year saw post-tax profits increase by 17%, the second successive year of growth. As the company has a market capitalisation of less than £5bn, that makes the shares look cheap to me.
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The 14.6p annual dividend per share means the current yield is a beefy 7.7%. The dividend was cut several years ago. If the business struggles to retain customers that could happen again. But the yield is high enough to attract me to Abrdn as a holding for my portfolio.
Imperial Brands
Tobacco products manufacturer Imperial Brands (LSE: IMB) has a dividend yield of 8.3%, putting it among the highest-yielding FTSE 100 shares.
High dividend yields can signal elevated risk. The City may not expect the dividend to last, pushing the share price down and the dividend yield up. Imperial is heavily dependent on cigarette sales, so declining sales in many markets pose a clear risk to revenues and profits. But I think the company is addressing that. It cut its dividend several years ago, and sold its premium cigar business to reduce debt. Meanwhile, it is increasing marketing activity in key markets as part of a strategy to target higher share to sustain its volumes, even as total demand shrinks.
The company is also developing non-cigarette product lines. It is doing that less quickly than competitors, but financially I think that could make sense. Rivals can pick up the cost of creating market demand, then in a few years, Imperial will hopefully ramp up its presence when demand has already been created. Strong cash flows and an attractive dividend yield mean Imperial is a share I would happily keep buying for my portfolio.
M&G
Like Abrdn, client retention has been a key challenge for investment manager M&G (LSE: MNG) in the past few years. There are signs that it is winning this fight. In its latest report, the amount of assets under management grew modestly and the company increased its dividend, albeit only slightly.
Although that increase was small I found it encouraging. M&G management has said it aims to maintain or increase the firm’s dividend. That is never guaranteed, but the fact M&G delivered on this goal last year seems encouraging to me. Currently offering an 8.5% yield, M&G is among the stocks with big dividends I would buy for my portfolio.
Its brand name and reputation should help it attract new customers. Despite that, there is an ongoing risk that disappointing investment performance could lead clients to move elsewhere, hurting revenues and profits. But I am hopeful that M&G has turned a corner and can at least maintain its current level of business. That could be enough to support the dividend.
Persimmon
A dividend yield that has grown recently is that of builder Persimmon (LSE: PSN). That is not because the dividend itself has increased. It is down to the Persimmon share price tumbling 32% over the past year.
The impact of that has been to push the dividend yield up to 11.1%. I think that size of yield suggests many investors are worried that the dividend will be hard to sustain. Economic pressures could hurt housing prices and Persimmon barely covers its dividend from earnings at the moment.
However, I feel fairly bullish about the idea of buying and holding these shares in my portfolio. Persimmon has a proven and highly profitable business model that it has honed over many years and through previous housing crashes. In the long term, that could help to support dividends. Its policy of paying out most of its earnings to shareholders does mean that a drop in profits could quickly lead to a dividend cut. But with a yield of 11%, even if the dividend was halved, the yield would still beat that of many FTSE 100 shares.
Tobacco shares with big dividends
As well as Imperial, I would consider buying shares of another tobacco company for my portfolio. British American Tobacco (LSE: BATS) owns brands such as Lucky Strike. It is one of the leading tobacco companies globally. I think that helps reduce the short-term risk from declining cigarette use, as in some markets demand remains more robust than elsewhere.
Overall though, I expect cigarette volumes to keep falling in coming years, potentially hurting sales and profits for British American. Its premium brand portfolio gives it pricing power, which might help it maintain profits even as volumes decline. It is also spending heavily to build a business beyond cigarettes. For now that is burning cash, but the company expects it to start making money in 2025.
British American has raised its dividend annually for over two decades and currently yields 6.5%. it is buying back its own shares again, suggesting management confidence in its financial strength. I also like the fact it has been paying down debt, although it remains substantial. Overall I like the large, internationally diversified and highly cash generative nature of the British American business. I own its shares and would happily buy more for my portfolio.
