Earlier this week, I scanned the UK market for stocks with dividend yields of 7.5%, or higher. In total, 63 stocks came up.
Here, I’m going to look at three of these high-yielders. Are they worth buying for my portfolio?
Legal & General
First up, we have insurer Legal & General (LSE: LGEN). Its yield came up as 8.8% (this is a ‘rolling’ forward-looking yield, which allows me to easily compare yields on companies that have different financial reporting dates).
I think Legal & General has a lot going for it from an investment perspective. For a start, the company has long-term growth potential. In the long run, it should benefit from rising stock markets (it’s a big player in the index fund market), and the ongoing corporate pension de-risking trend.
Secondly, it has a great dividend track record. Last year, the company declared total dividends of 20.3p per share. This year, analysts expect a payout of 21.4p per share (a yield of about 9.1% at today’s share price).
But I’m just wondering if new CEO António Simões could opt to reduce the payout in the future. Given that the company recently said it believes it has considerable opportunities available to deliver attractive returns to shareholders by retaining and investing capital, it’s a risk to consider.
Given this information, I’m happy to sit on the sidelines for now.
Vodafone
Moving on to the next high dividend stock, we have telecoms giant Vodafone (LSE: VOD). Its rolling dividend yield came up as 11.3%.
Now, the yield here’s a bit misleading. You see, for the last few financial years, Vodafone has paid out nine euro cents per share in dividends. And recently, it advised it would pay out the same amount for the year ended 31 March.
For this financial year (ending 31 March 2025) however, it plans to cut its dividend by 50% to 4.5 euro cents. At today’s share price, that equates to a yield of about 5.7%.
I’ll point out that I think cutting the dividend’s the right move. It should help Vodafone strengthen its balance sheet and free up more capital to reinvest for growth. In the long run, the move could help its share price.
I won’t be buying the shares though. For me, the company doesn’t have enough growth potential.
HSBC
Finally, we have HSBC (LSE: HSBA). My data provider puts its dividend yield at about 7.6%.
HSBC’s yield is a bit complicated. That’s because this year the company is paying out a special dividend of 21 cents to investors from the sale of its Canadian operations (the ex-dividend date for this is 9 May so anyone who buys the stock before then will receive this).
Even without this special dividend however, the level of income’s still decent. For FY2025, analysts expect total dividends of 61.7 cents per share. That translates to a yield of just under 7% today.
Looking beyond this yield, there are other reasons to like HSBC shares. I like the fact the company’s focusing more on wealth management and Asia today – two areas with significant long-term potential.
Now, in recent years, I’ve steered clear of bank stocks. That’s because they tend to be vulnerable to economic weakness. But I must admit I’m tempted by HSBC, given its long-term strategy. I’ve got it on my watchlist.
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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Vodafone Group Public. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
