I’ve already examined some of my favourite dividend picks in the FTSE 100. And the top London index is usually my first port of call when I’m looking to top up my income portfolio. But I see many UK dividend shares spread across the whole of the stock market that I really would buy today.
For long-term income, I think it’s hard to beat a good investment trust. I hold City of London Investment Trust, which I bought on a yield of 5.2%. With the shares having gained a little, that’s now down to 4.8%, but I think it’s still a great yield. City of London heads up the Association of Investment Companies’ list of dividend heroes, having lifted its dividend for 54 years in a row. Others on the list that I’d buy for long-term dividends include Murray Income Trust (47 years of rises, with a 3.8% yield), Merchants Trust (39 years, 5.2% yield) and Schroder Income Growth Fund (25 years, 4%).
I’ve always considered housebuilders among my favourite UK dividend shares. Investors will mainly think of the big FTSE 100 ones, like Taylor Wimpey and Persimmon. But I see some very attractive dividend yields from FTSE 250 builders. Dividends have been held back by the pandemic, but I expect them to recover. And prior to Covid-19, Redrow shares yielded 5.6% in 2019, Bellway paid 5.1%, and investors pocketed 4.9% from Countryside Properties. Housebuilders might go through some ups and downs, but I see long-term market demand delivering steady cash flow for shareholders.
Cash from property rental
Speaking of housebuilders, the buy-to-let business is a popular one. But it can be risky for small landlords, and plenty can go wrong. That’s why I’d look at Grainger, which bills itself as one of the UK’s largest professional landlords. With a big property portfolio and enjoying economies of scale, Grainger has been growing its dividend. The yield is only around 2% right now, but it’s grown at a compound annual rate of 5.4% for the past decade.
Any list of my favourite UK dividend shares has to include the insurance sector. It’s another cyclical one, but insurance can be a top long-term generator of cash. And right now, I like the look of Direct Line, another FTSE 250 stock. Like the rest of the sector, Direct Line had to rein in its 2019 dividend. But we have already seen a return to progressive payments, with a yield of 6.9% paid for 2020.
The best UK dividend shares?
And while I’m thinking of the financial sector, what about Moneysupermarket.com? The price comparison site has plenty of competition, and not many people have been using it to find the best holidays of late. And the share price has gone pretty much nowhere overall in the past five years (though in a rather volatile way). But the dividend has been growing steadily, and yielded 4.5% for 2020.
So are these the best UK dividend shares out there right now? Well, dividends aren’t guaranteed (as we saw last year) and they might have to be reduced. But this is just a look at some potential dividend buys that I have on my shortlist, from some of my favourite sectors. I already own shares in a couple I’ve mentioned, and I’m very likely to add some of the others too.