I aim to retire early with a reliable stream of passive income to live comfortably well into old age.
I believe one of the most effective ways to do that is with a portfolio of high-yield dividend stocks.
Dividends are a portion of profits that companies pay shareholders as an incentive to invest. A dividend yield represents the annualised percentage, usually paid in increments throughout the year.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
I’ve spent a lot of time researching the UK stock market to discover dividend-paying companies that are likely to provide me solid returns for years to come.
Today, I’m considering one FTSE 100 and two FTSE 250 companies that I think offer some of the best dividend-paying shares on the market currently.
Burberry Group
Famous for its luxury bags and coats, Burberry Group (LSE:BRBY) is one of the UK’s most well-known and beloved fashion brands.
Recently, however, it’s struggled to reach the highs of previous years. In January 2024, shares hit a four-year low of £12.30, down by almost 50% over the previous 12 months.
But things are looking up and Burberry is proving its value in the dividends department.
The company’s balance sheet is solid, with a debt-to-equity (D/E) ratio of 35% and a relatively good net profit margin of 14.5%. This makes it a profitable company that’s unlikely to default on loans any time soon.
With a 4.8% dividend yield, it’s the lowest on my list – but a more established company than the others. When building my dividend portfolio, I must strike a balance between high-yield and reliable stocks, so I’d consider it a good addition.
Plus500
Plus500 (LSE:PLUS) provides online trading services via an internet platform and mobile app. The FTSE 250 listing has a moderate £1.4bn market cap at the time of writing.
It sports a higher-than-average dividend yield of 7.3%, with the next dividend scheduled to be paid out on 11 July this year. Although dividend payments have been unstable in the past, the company has enjoyed consistent growth with low volatility.
This means it could be a reliable addition to my portfolio, with less chance to incur a sudden price drop. However, analysts forecast an 8% decline in profits over the coming years. That’s a risk, because Plus500 may choose to skip some dividend payments if profits are too low.
But with no debt and a near-flawless balance sheet, I’m confident that Plus500’s high yield dividends would provide me decent returns over the long run.
Dunelm Group
Speciality homewares retailer Dunelm Group (LSE:DNLM) is a £2.3bn FTSE 250 company that offers a decent 6.7% dividend yield. The share price enjoyed consistent growth over the past 16 years, rising almost tenfold from £1.18 in 2008 to £11.50 today.
The next dividend is due on 9 April, with the ex-dividend date set for 14 March. Dividends are paid out on all shares purchased prior to the ex-dividend date.
Although I like Dunelm’s dividend yield, payments have been volatile and sporadic over the past few years. Furthermore, its earnings are forecast to grow slower than the UK market, likely limiting returns beyond the dividend.
This would make it a less reliable addition to my portfolio, and probably one I would skip over for now.
