There are some great UK stocks to invest in that have dividend yields of more than 5%. I think this would be an excellent way for me to generate passive income and grow my portfolio as well.
I’d reinvest the dividends to buy more shares. This cycle is called ‘compounding’ and should enable me to grow my investments in the long term.
So here are three of my best shares to buy now that have high dividend yields.
Should you invest £1,000 in BP right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?
The green one
The Renewables Infrastructure Group (LSE: TRIG) shares pay out a yield of more than 5%. For me, this stock ticks two main boxes. Not only is it a great way to generate income, but also it invests in green assets. So I’d get exposure to the renewable energy sector as well.
The investment trust has a portfolio of 79 investments that are spread across solar, onshore and offshore wind, as well as battery storage. These are located all over the UK and Europe.
What I find encouraging is that the management team is actively looking to grow the pool of investments over time. This means that the trust should be even more diversified, thereby reducing concentration risk.
But TRIG isn’t cheap. It’s currently trading on a 14% premium to its Net Asset Value (or NAV). Some investors may be uncomfortable buying a stock that expensive, but I’m not.
The oil giant
Another good share for me to buy now is BP (LSE: BP). The oil giant suffered in 2020 but is recovering this year.
BP has managed to reduce is net debt to below $35bn by making asset disposals. This is a short-term fix to get its balance sheet in some sort of shape. But this also means that it’s able to reward stockholders with an increase in the quarterly dividend as well as share buybacks.
The stock currently has a 6.5% dividend yield. It also recently said that if the oil price stays at $60 per barrel then it expects to deliver $1bn per quarter share buybacks and increase the annual dividend by 4% through to 2025. So it’s happy days for the income-hungry investor like me.
Of course the stock is dependent on oil and gas prices. While the world in transitioning to using renewable energy, it still runs on oil and gas. Any volatility in these commodities is likely to impact the share price.
The asset manager
M&G (LSE: MNG) is a stock that has an 8% dividend yield. What’s more, it’s dirt-cheap and trades on a current price-to-earnings (P/E) of just over 5x. So I know that I wouldn’t be overpaying for this high-income share.
Its recent half-year numbers highlighted growth in its assets under management. What I also like about this company is that it’s focusing on sustainable investing. This is becoming increasingly popular with investors and should help boost funds under management.
With the rise of low-cost passive investments, this is placing pressure on active managers. But if M&G can grow its assets then it can afford to compete with the passive alternatives via competitive pricing.
There’s no guarantee that this will continue. Especially when the industry is fiercely competitive and there are larger players like BlackRock.
But I can’t ignore the stock’s cheap valuation and attractive dividend. Hence, I’d buy it now.
