When searching for dividend shares to buy, the dividend yield is a key financial ratio to consider. For retirees living off their portfolio income, investing in high-yield stocks can help them beat inflation and maintain their desired lifestyle.
However, there’s a caveat. Shareholder distributions aren’t guaranteed and higher yields can be challenging to maintain. Dividend sustainability’s crucial too.
With those considerations in mind, here are three dividend shares worth contemplating that offer better yields than the 3.6% average across FTSE 100 stocks.
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British American Tobacco
Sin stock British American Tobacco (LSE:BATS) might raise ethical concerns for some investors. However, its juicy 7.5% yield shouldn’t be ignored lightly.
Combining a low forward price-to-earnings (P/E) ratio below nine with a consistent dividend growth history, there’s a strong investment case for the FTSE 100 cigarette colossus. That’s bolstered by the group’s commitment to execute a £900m share buyback programme this year.
Granted, investing in tobacco companies carries risk. Fewer people are smoking each year and governments around the world continue to hammer the industry with higher taxes and stricter regulations.
Nonetheless, a return to profitability in FY24 suggests British American Tobacco isn’t down and out yet. In addition, smokeless products now account for 17.5% of total revenue. That’s a testament to the firm’s efforts to futureproof its business.
Promisingly, the company’s commitment to dividend growth in sterling terms looks credible based on expectations that it can generate £50bn of free cash flow by 2030.
Legal & General
Staying within the FTSE 100, Legal & General (LSE:LGEN) shares offer a mammoth 8.8% dividend yield.
The financial services giant’s a longstanding favourite among UK dividend investors. Considering the business aims to deliver £5bn over the next three years in dividends and share buybacks, I don’t see that changing anytime soon.
This target’s underpinned by a sturdy balance sheet. The group’s Solvency Coverage Ratio — an important indicator of financial strength — climbed from 224% to 232% in FY24, beating forecasts. A rise in pre-tax profit from £76m to £332m is another positive sign.
However, dividend coverage of 1.1 times expected earnings doesn’t provide much safety for investors. A low coverage ratio isn’t abnormal for Legal & General, but it’s still a concern.
That said, I’m pleased the group plans to buy more defence stocks, which are often shunned by asset managers. Amid elevated geopolitical tensions, the sector might outperform in the coming years, which could boost growth for the Legal & General share price.
Victrex
Finally, specialty chemicals company Victrex (LSE:VCT) is a FTSE 250 dividend share worth considering. It boasts a 6.1% yield.
This firm specialises in manufacturing PEEK, a high-performance thermoplastic often used as a metal substitute in engineering. Recently, trading conditions have been tough. Consequently, Victrex’s share price has lost nearly half its value in five years.
Given the business relies on cyclical demand from the manufacturing industry, it’s vulnerable to economic shocks. That’s a concern amid Trump’s tariff chaos.
However, there are reasons for optimism. A new Chinese factory began commercial production last year, capable of producing 1,500 tonnes of PEEK annually. China’s a critical market for the company, so this might mark a revival in its fortunes.
Following a solid Q1 performance, it’s worth pondering buying this dividend stock on the cheap.
