I reckon there’s good value among stocks in the FTSE 250 index right now. And I’ve bought some of them. 

On track

For example, I’m keen on soft drinks maker Britvic (LSE: BVIC). In July, the company said it’s “on track to deliver a full-year performance in line with expectations.” And City analysts have pencilled in an uplift in earnings of just over 37% for the current trading year to 30 September.

We’ll get the actual figures in the full-year report due on 23 November. Meanwhile, there’s a nice dividend for shareholders to collect. With the share price near 738p, the forecast yield for next year is just under 4.3%.

Britvic could run into operational setbacks ahead. But at the moment it’s trading well with a programme of share buybacks in full swing. And apart from 2020 when Covid hit the markets, dividend progression has been steady.

Solid revenue performance

I also like trading platform provider IG Group (LSE: IGG). In September, the firm posted an 11% increase in revenue. And the directors said the “solid” first-quarter revenue performance will help support the company’s medium-term growth targets.

IG has a multi-year record of growing its revenue, earnings and shareholder dividends. And the company is running a programme of share buybacks. But the dividend is attractive too. With the share price near 753p, the forward-looking yield is just above 6% for the trading year to May 2024.

It’s possible for the business to miss its estimates. But trading is strong right now. And IG was one of those firms that managed to keep up its dividend payments through the lockdowns.

Well positioned

Another that’s captured my attention is Investec (LSE: INVP), the banking, investment and wealth management services provider. The company has grown organically and via acquisitions from being a small finance company in South Africa in the 1970s.

Today, Investec’s core operations focus on the UK and South Africa. And it operates internationally as well. The business now sports a market capitalisation of around £3.6bn and has earned its place in the FTSE 250 index.

September’s pre-close trading update indicated a robust set of figures for the first-half period to 30 September. The company expects a chunky double-digit-percentage uplift in earnings. And we’ll get the actual outcome with the half-year report due on 17 November.

Meanwhile, the directors said Investec is “well positioned to continue to support its clients and pursue growth opportunities in line with its strategic objectives.”

City Analysts expect the dividend to increase by just under 14% in the trading year to March 2024. And with the share price near 401p, the forward-looking yield is above 7%. However, it’s possible the firm could miss its estimates. And that’s particularly true if a global economic downturn gathers pace.

Nevertheless, despite the risks, I’m hanging on to my shares in these three FTSE 250 companies. And I hope to own them for decades.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Greggs 

What it does: Greggs makes and sells sweet and savoury foods through more than 2,000 stores across the UK.

By Royston Wild. Morning-goods retailer Greggs (LSE: GRG) might not be suitable for risk-averse investors. Even food specialists are suffering from weakening demand during the cost-of-living crisis. At the same time, worsening inflation is putting growing pressure on the baker’s bottom line. 

Having said that, I think it has the tools to continue growing earnings even as recession approaches. So do City analysts, who think the business will report earnings rises of 1% and 4% in 2022 and 2023 respectively. 

Sausage rolls, coffee, doughnuts, and the other goods Greggs is famous for sell well at all points of the economic cycle. What’s more, the bakery chain sells its products at low price points, giving its revenues column extra resilience when consumers feel the pinch. 

This is why like-for-like sales rocketed 22.4% during the first six months of 2022. I’m expecting another impressive report when third-quarter trading numbers are released on Tuesday, 4 October. This could give the Greggs share price a lift following recent heavy weakness. 

Royston Wild does not own shares in Greggs. 

Associated British Foods

What it does: Associated British Foods is a diversified collection of businesses that includes retail, grocery, sugar and agriculture.

By Andrew Mackie: In a worsening economic environment, it might seem strange that I would choose a company whose revenue is so heavily reliant on retail. However, with Associated British Foods (LSE: ABF) share price languishing at a 10-year low, I believe the market is missing a trick here.

UK sales at Primark have been performing well and are nearly back to pre-Covid levels. However, the same cannot be said across continental Europe where like-for-like sales are down 18%. As the cost-of-living crisis intensifies, ABF is starting to see signs of a consumer spending slow down across all markets.

Whilst retail is struggling, other parts of the business are thriving. Surging sugar prices has meant that revenues are well ahead of last year. In addition, UK sugar production is up 14%. It’s a similar story in grocery, which is benefiting from price increases across a range of branded products.

ABF’s share price is now trading 17% lower than during the pandemic. That is despite all its Primark stores being open, a successful launch of its UK website earlier in the year and an expected Christmas launch of a trial click and collect.

Opportunities to pick up cheap shares in high-quality companies with proven business models don’t come along very often. The fact that ABF is a family-run business provides me with added reassurance. That is why I have been buying more of its shares recently.

Andrew Mackie owns shares in Associated British Foods.

IG Group

What it does:  IG Group Holdings is a UK-based financial technology company providing an online platform for traders.

By Paul Summers: Given concerns over rapidly rising interest rates and a prolonged recession, I suspect global markets could remain choppy for a while. Should this be the case, spread-betting supremo IG Group (LSE: IGG) might be a great place to park my cash. 

In contrast to most listed companies, this high-quality outfit actually benefits from volatility. This may be one reason why the share price has held up fairly well (albeit still down) over 2022.   

While never guaranteed, the dividend stream also looks enticing. IG shares currently boast a forecast yield of 6%. As inflation continues to bite, that’s worth grabbing in my opinion.

Sure, there are risks here. The industry it operates in is often targeted by regulators. Competition for clients also remains fierce.

With sky-high margins and a robust balance sheet, however, I can think of a lot worse places to be invested in these tricky times.

Paul Summers has no position in IG Group

B&M European Value Retail

What it does: B&M is a leading staple & discretionary discount retailer with over 1,100 stores across the UK and France.

By Zaven Boyrazian. B&M European Value Retail (LSE:BME) is one of the UK’s leading discount retailers for both staple and discretionary items. The group operates 1,016 stores across the country under the B&M and Heron Foods brands, with a further 109 locations popping up in France.

Lately, the tailwinds from the pandemic have started dying down, causing revenue growth to seemingly stagnate. Unsurprisingly, its share price has followed, falling by a massive 50% courtesy of the stock market volatility.

However, as consumers seek to cut spending, the popularity of discount retailers is rising. And suppose the worst comes to pass and the UK falls into a recession. This could create ample opportunities for B&M to steal market share from its larger competitors.

Being a discount retailer obviously means that pricing power is basically non-existent. But with positive trends already emerging in its latest results, paired with a P/E ratio of 7.6 and a dividend yield of 5.2%, I believe Now could be an excellent buying opportunity for my stocks and shares portfolio.

Zaven Boyrazian does not own shares in B&M European Value Retail.

Greggs

What it does: With around 2,300 outlets, Greggs is the UK’s leading fast food chain. It focuses primarily on baked goods.

By Stephen Wright. In an uncertain economic environment, I’m looking for something stable. That’s why Greggs is my Best British share to buy in October.

Peter Lynch famously said that his initial interest in Dunkin Donuts came from seeing the constant queues outside – even in a recession. I feel the same way about Greggs.

From what I can see, the current cost-of-living crisis appears to be making no difference to this company. It’s easy enough to see why. 

The company’s products are familiar and inexpensive. This means that they’re less likely to get cut from the budgets of price-conscious consumers.

At a price-to-earnings (P/E) ratio of under 16, I don’t think that the stock is particularly expensive. The company also generates solid returns on equity.

There’s a 3% dividend for investors looking for passive income and the company plans to expand to 3,000 stores in the future. I’d be willing to buy shares for my portfolio at today’s prices.

Stephen Wright does not own shares in Greggs.

BT 

What it does: BT is a UK-based telecommunications company with operations in over 180 countries.

By Charlie Keough. My top British stock for October is BT (LSE: BT-A). The BT share price has failed to take off in the last five years. And this decline has continued into 2022 due to inflationary pressures. However, I think its shares could be a strong long-term buy.  

Firstly, its attractive 5.7% dividend yield is a great way for me to put my money to work at a time when stagnant cash is losing value.  

Further, I like the large infrastructure that BT already has in place. This provides the firm with, to some extent, a higher degree of pricing power. It’s also on track with its Openreach rollout, while its 5G network now covers more than half of the UK.  

What does concern me is its £19bn of debt. With interest rates rising, this will only become more difficult to eradicate. 

However, I think its solid foundations will help BT overcome the challenges it will face in the foreseeable future. I’d buy some shares this month.  

Charlie Keough does not own shares in BT.  

BAE Systems

What it does: BAE Systems is a leading defence, aerospace, and security company that serves both the UK and US governments.

By Edward Sheldon, CFA. BAE Systems (LSE: BA) strikes me as a relatively safe pick in the current environment. Given the high level of geopolitical uncertainty arising from the Russia-Ukraine crisis and the tension between China and Taiwan, governments are unlikely to reduce their defence spending any time soon.

Aside from the supportive backdrop, one thing I like about BAE Systems is the attractive dividend yield on offer. At present, analysts expect the company to pay out 26.3p per share for 2022. That equates to a yield of over 3% at the current share price. The company is also buying back its own shares – an extra reward for shareholders.  

It’s worth pointing out that if the Russia-Ukraine crisis was to come to an abrupt end, sentiment towards defence stocks could deteriorate. This could have a negative impact on BAE Systems’ share price. Overall, however, I think BAE is a good stock to own right now.

Edward Sheldon has no position in BAE Systems.

InterContinental Hotels Group

What it does: InterContinental Hotels Group operates a number of different hotel brands across the globe, including Regent Hotels, Crowne Plaza, and Holiday Inn. 

By Andrew Woods. My top British share for October is InterContinental Group (LSE:IHG). This hotel operator was battered during the pandemic, as virtually all of its hotels were forced to close. As a result, it slumped to a $280m pre-tax loss for 2020. By 2021, however, when many restrictions subsided, the business reported a pre-tax profit of $361m.

For the six months to 30 June, the firm stated that operating profits doubled to $377m. Furthermore, it announced that it was reinstating its dividend for the first time since 2019. It paid an interim dividend of ¢43.9 per share, a 10% increase compared to the same period in 2019. Moreover, it’s embarking on a $500m share buyback scheme. This is a signal that the company is in a strong financial position, although I’m always aware of the threat of further pandemic variants.

The business also offers geographical diversity, with established operations in the US and Europe, and a growing presence in China.

Andrew Woods has no position in InterContinental Hotels Group.

Reckitt

What it does: Reckitt is a consumer goods company. It primarily produces health, hygiene, and nutritional products, and is famously known for brands such as Dettol, Strepsils, and Durex.

By John Choong. As the UK heads into a recession, discretionary spending is expected to decline. However, demand for products from Reckitt (LSE: RKT) isn’t likely to wane due to its inelasticity as consumer staples, thus making it a contender for a position in my portfolio this October.

Although inflation can’t be ignored, the superiority of its brand appeal is unmatched across many of its product categories. This has allowed the group to raise the prices of its products while maintaining healthy profit margins of 22.5% in its latest half-year results, with management expecting better growth in the second half of the year. The fact that Reckitt earns the bulk of its revenue from outside the UK also makes it a safer investment due to the geographical diversity of its income steam.

Nonetheless, it’s worth noting that Reckitt’s balance sheet isn’t the healthiest. Having quite a high debt-to-equity ratio (107%) isn’t ideal in a high interest rate environment, and is something I should definitely take note of.

John Choong has no position in Reckitt.

Despite all the negatives in current market fundamentals, I’ve noticed two trading platform shares that seem to thrive on it, with impressive balance sheets, past performance, and dividends.

Why are trading platforms thriving

Trading platforms that specialise in providing solutions to retail traders who are looking for rapid execution, and short-term positions benefit from a very profitable business model. These traders, more experienced in financial markets and keen to take on higher risk, make a high number of trades regularly compared to traditional investment accounts.

The popularity of trading apps particularly has seen tremendous growth. Traders in these markets will also often use leverage on their position, allowing platforms to collect revenue from interest swaps as well as their markup on each trade.

The cryptocurrency bull run of 2021 certainly helped fuel demand for such trades, but since then uncertain equity markets have been just as attractive to opportunistic traders seeking volatility.

Plus500

The first of these shares is Plus500 (LSE:PLUS). The Plus500 share price boats 25% year-to-date growth at the time of writing. This follows several positive outcomes, compared to market expectations, in the company’s financials.

Earnings for Plus500 have grown to all-time highs of approximately £801m – 22.57% year-to-date – however, its profit margins (44.80%) are lower than they were last year (53.10%).

Plus500’s balance sheet is cash-rich and debt-free, meaning a rising base rate is unlikely to be of concern. It also positions it well to achieve the board’s plans for US expansion and targeting acquisitions as announced by the CEO, David Zruia, following the interim report.

I’ve held Plus500 shares since 2021, and I’m looking at possibly adding to my position while retail traders still seem keen on high risk, particularly when the current 6.8% dividend yield is on offer.

IG Group Holdings

IG Group Holdings (LSE:IGG) is my second strong contender for medium to long-term growth. The share price is down 8% year to date as I write – respectable losses compared to the FTSE 250.

IG Group has a similarly strong balance sheet, however. The full-year 2022 results showed revenue at approximately £965m, up 13% from last year’s results. Profit margins decreased to 41% from 44% in FY2021, a lesser decline than Plus500.

With earnings per share also exceeding analyst estimates by 6.7%, this leaves market expectations optimistic, with forecast revenue growth of 5.5% next year.

IG’s current dividend yield stands at 5.83% but, unlike Plus500’s, has been steadily increasing on average over the last five years.

I’m keeping a close eye on IG Group, as I think it has the potential to provide competitive dividend income as well as share price growth that is, most importantly, sustainable.

Earned income is great. But unearned passive income works for me even when I’m sleeping. And getting it is one of the keys to building long-term wealth for many people.

For me, stocks and shares are one of the easiest ways to generate passive income. I see businesses as active beasts working hard on my behalf when I own some of their shares. Enterprises can build value by increasing their assets and earnings. And many of them give some of their gains to shareholders via dividend payments.

However, it’s worth me bearing in mind that such happy outcomes don’t always happen. Sometimes businesses can lose value if their earnings slip. And that can result in the double whammy of a falling share price and declining dividend payments. 

That’s why it’s important for me to choose my investments carefully after doing my own research. But, regardless of the risks, I’d be keen to invest £100 a month into dividend-paying shares. And I’d aim to hold them for the long term.

An upbeat outlook

For example, I’m keen on trading and investment platform provider IG Group (LSE: IGG). With the share price near 802p, the forward-looking dividend yield is just above 6% for the trading year to May 2024.

City analysts’ estimates can prove to be inaccurate. But the company has a multi-year record of consistent shareholder payments even through the pandemic. And I’m encouraged by the optimistic tone in July’s full-year results report.

The company delivered some decent trading figures. And the directors restated their determination to build on the recent growth of the business. They also committed to an ongoing progressive dividend policy. And that means the company will aim to raise its dividend a little each year. Although such outcomes are never certain because all businesses can run into operational setbacks from time to time.

But I reckon the business enjoys solid cash inflow from its activities. And an ongoing share buyback programme is in full swing alongside dividend payments. The directors said they expect to reward shareholders using “around 50% of adjusted profit after tax each year.” And that figure will likely include dividends and share buybacks. 

Strong cash generation

I also like the look of Renewables Infrastructure. The company invests in operational assets that generate electricity from renewable energy sources. And it focuses mostly on wind farms and solar photovoltaics (PV) parks. 

With the share price near 143p, the forward-looking dividend yield is around 4.8%. And I reckon that’s a potentially stable income to collect from the modern-day energy sector. However, there are some risks. For example, costs could escalate as infrastructure assets age. And that could squeeze cash flow and profits making it harder for the company to pay shareholder dividends in the future.

But I’d diversify my passive income further by investing in smoking products company British American Tobacco. The company operates a stable cash-generating business. But the industry faces keen regulatory scrutiny and that could lead to difficulties in the future.

However, the company is working hard to develop turnover from less harmful products than cigarettes. And with the share price near 3,529p, the forward-looking dividend yield is around 7% for 2023. I think that’s attractive. 

Today I want to look at three of these companies, all with dividend yields over 5%.

10% yield from a household name?

My first pick is home and motor insurer Direct Line Insurance Group (LSE: DLG).

This well-known firm has a big share of the UK market, but conditions are difficult at the moment. Soaring used car prices and repair costs have put profits under pressure.

Direct Line’s share price fell recently, after the company has admitted that profits would be lower than expected this year. This slump has left the stock with a tempting 10% dividend yield.

How safe is this bumper payout? In my view, Direct Line can probably hold its dividend if the group’s profitability recovers next year. CEO Penny James says this should happen, as insurance price rises feed through.

The main risk I can see is that it will take longer than expected for profits to recover. If that happens, I think a dividend cut could be needed.

Personally, I’m happy to accept the risk of a cut. I think Direct Line is a good business with a solid future. On balance, I think the shares offer good long-term value at this level.

Profit from market volatility

Financial trading firm IG Group (LSE: IGG) is best known for its spread betting and CFD services, which are popular with UK retail investors.

I’ve owned this stock for several years and it’s served me well during uncertain times. Profits hit record levels during the pandemic, as volatile markets boosted trading activity.

IG is the market leader in this sector. The group boasts an operating profit margin of more than 40% and strong cash generation. However, the maturity of the UK market means that growth opportunities at home may be limited.

To address this, CEO June Felix has bought US options trading firm tastytrade to use as a launchpad into the US market. If she’s successful, then I think the potential growth is huge. The risk is that the US market is tough and competitive — success won’t be easy.

The good news is that I don’t think the market is pricing in much US growth yet. IG shares trade on just nine times forecast earnings, with a dividend yield of nearly 6%. I view the stock as a buy for income.

An underrated bank

My final pick is FTSE 250 merchant bank Close Brothers (LSE: CBG). This £1.7bn bank specialises in commercial lending, car finance, and stockbroking. It’s not exactly a household name, but Close has been in business since 1878 and is well-respected in the City.

Until 2020, Close Brothers hadn’t cut its dividend for more than 30 years. The payout is already back to 97% of its pre-pandemic level, with a further increase pencilled in for the year ahead.

Like all banks, Close Brothers faces the risk of rising bad debts if the UK goes into recession. But the company’s long track record and solid profitability suggest to me that the situation will be manageable.

With a 5.7% dividend yield and long-term growth prospects, Close is on my buy list.

Online trading

As a quick reminder, IG Group provides an online, low-fee platform where people can invest and trade stocks, bonds, CFDs, and index trackers.

It is worth noting that in the past two years, online trading levels have surged. This was mostly due to the pandemic as people had more spare time on their hands due to lockdown, which also led to a bit more spare cash too.

So what’s happening with the IG share price currently? As I write, the shares are trading for 697p. At this time last year, the stock was trading for 868p, which is a 19% decrease over a 12-month period.

Many stocks have pulled back in recent months due to macroeconomic headwinds and the tragic events in Ukraine.

Even the best stocks to buy have risks

The obvious risk of buying a stock purely for its dividends is the fact that dividends can be cancelled at any time. This is because dividends are underpinned by performance. If performance dips, a business cannot return cash to investors. This is a risk I am wary of when reviewing stocks like IG for passive income purposes.

Next, competition in the online trading platform market is intense. One competitor of note is Plus500. With many firms vying for market dominance, IG could suffer from a loss of customers, which could affect performance and returns.

Finally, IG specialises in spread betting, which is classed as gambling here in the UK. Tighter regulations around this in the future could hurt performance and returns too.

The bull case and my verdict

So to the positives then. I can see IG has an excellent track record of performance in recent years. I do understand that past performance is not a guarantee of the future, however. Looking back, I see it has increased revenue and profit for the past three years in a row.

This excellent performance has underpinned consistent dividend payments, which have grown year on year too. IG’s current dividend yield stands at an enticing 6%. This is higher than the FTSE 100 average of 3%-4%. It even managed to pay a dividend during the pandemic period, where many other businesses suspended their payouts.

Finally, the IG share price pulling back has made the shares look really good value for money too. They’re currently on a price-to-earnings ratio of just seven. The general consensus is that a ratio of below 15 represents value for money.

Right now I do believe IG Group is one of the best stocks for me to buy to boost my passive income stream. For that reason, I would add the shares to my holdings.

I’ve identified two FTSE 350 value stocks paying big dividends that I’d buy in July. Let’s explore each in turn.

Imperial Brands plc

Imperial Brands (LSE: IMB) is the world’s fourth-largest tobacco multinational. This FTSE 100 stock has a price-to-earnings (P/E) ratio of 8.65 and a whopping 8.71% dividend yield.

The Imperial Brands share price has outperformed in 2022, rising 10%.

The company’s half-year results show encouraging progress on a constant currency basis. Adjusted revenue increased slightly by 0.3%. Adjusted operating profit and basic earnings per share saw healthy growth of 2.9% and 7.7%, respectively.

Resilient cash flow is an attractive feature of tobacco companies and Imperial Brands doesn’t disappoint, with a 12-month cash conversion rate of 102%. This acts as a strong foundation upon which the group can strive to maintain its status as one of the top 10 dividend stocks in the FTSE 100 index.

The outlook isn’t all rosy for this value stock, however. There’s a risk governments could increase taxes on tobacco products, thereby eating into profit margins. These are popular taxes to raise in tough times considering smoking is a minority pursuit in many populations.

Furthermore, Imperial Brands has suffered declines in market share in Germany and Spain this year. These are two of its five largest markets. Plus, an exit from Russia reduced pre-tax profit by £225m in the first six months of the year — a 39% haircut.

Nonetheless, growth in the US, UK, and Australia more than offset declines in other parts of the world. I also view the stock’s P/E ratio and high dividend yield as compensating factors for the risks facing the business. I’d buy.

IG Group Holdings

IG Group (LSE: IGG) is an online trading provider offering access to spread betting and contracts for difference (CFDs) across equities, bonds, and currencies. This FTSE 250 stock has a P/E ratio of 7.22 and a dividend yield of 6.15%.

The IG share price is down 15% in 2022.

Despite the recent drawdown, IG Group goes from strength to strength. The company delivered pre-tax profit of £450.3m for FY2021 — a substantial increase from £295.9m the year before. Basic earnings per share grew to 100.7p from 65.3p.

What’s more, the company maintained dividend payments throughout the pandemic. It has paid a total dividend per share of 43.2p since 2018. With net trading revenue from continuing operations up 13% in Q3 2022, signs point to another good financial year.

However, the business faces stiff competition from other trading platforms, such as Plus500. If retail traders lose enthusiasm as the bear market in the US continues, IG Group could experience challenges in retaining its market share.

Nevertheless, I’m encouraged by the company’s healthy finances. Overall, I consider this value stock to be a good buy for my portfolio in July.

Moneysupermarket.com

I’ll hold my hands up and say that I didn’t time my entry to comparison website Moneysupermarket.com (LSE: MONY) particularly well. In the last year, the share price has slumped 36%.

Of course, trying to time the market is a mug’s game. As an experienced Fool, I know not to beat myself up too much. It’s impossible to predict the short-term direction of share prices. Besides, there’s still a lot to like here.

The valuation remains compelling. Having been impacted by the Covid-19 pandemic and the reduction in demand for motor and holiday insurance, Moneysupermarket shares now trade at an analyst consensus of 13 times forecast earnings. Naturally, this assumes analysts have got their sums correct.

Personally, I’m optimistic about this. Actually, I wonder if the company could pleasantly surprise before long. After all, the rise in the cost of living has likely pushed many to at least check if they could save money by switching insurance policies, loans, mortgages and credit cards. Moneysupermarket is one of the biggest players out there, helped by its ownership of the Martin Lewis-driven site Moneysavingexpert.com. The acquisition of cashback site Quidco not long ago is another string to its bow.

This is not to say the shares are without risk. Given the lack of deals, one big headwind for the FTSE 250 member right now is that it’s not making much money from energy switching. This could continue for a while yet.

Then again, I’m in no rush. The dividends also provide some comfort. While the extent to which profits cover the bi-annual payouts could be higher, a near-7% yield isn’t to be sniffed at.

IG Group

Another FTSE 250 stock I’d continue to buy is trading platform provider IG Group (LSE: IGG). Like its index peer, IG’s share price chart hasn’t been a thing of beauty over the last year or so. Again, this isn’t completely surprising.

Like its listed peers CMC Markets and Plus 500, IG benefited from the explosion in trading activity as the pandemic hit. Unsurprisingly, a purple patch like this couldn’t last forever and many investors decided to cash out.

Do I wish I’d done the same? Honestly, no. This still remains a fundamentally excellent business that consistently achieves great margins and high returns on the money it invests in itself (otherwise known as Return on Capital Employed). The acquisition of US-based Tastytrade for $1bn last year also gives the firm a runway for growth across the pond.

Earnings are expected to slip in the current financial year. On top of this, there’s always the threat of more regulations being imposed on this industry to protect clients (mostly from themselves).

Even so, a big shift in market sentiment is likely to be great news for IG when it does (inevitably) come. In the meantime, a well-covered 6.6% dividend yield will do just fine.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

BT

What it does: BT is a multinational telecommunications provider, operating in over 180 countries across the globe.  

By Dylan Hood. Inflation is creeping up across the globe, and as such, many high-growth stocks are starting to fall back from their lofty valuations. Value stocks like BT (LSE:BT-A) are performing well, as they have the power to control their pricing power in line with inflation. BT also has an abundance of well-established infrastructure, which means its fixed costs won’t increase much as prices start to rise.

In addition to this, BT has a healthy dividend yield of just below 4%. This is above the FTSE 100 average of 3.6%, and I expect this dividend to consistently remain high in the coming months. This is due to the strong consumer base that BT already has, and the new projects it has in the pipeline to drastically upgrade its network.

Dylan Hood does not own shares in BT.

Reckitt

What it does: Reckitt is a leading consumer goods company that is focused on health and hygiene products.

By Edward Sheldon, CFA. There are several reasons I’ve chosen Reckitt (LSE: RKT) as my top income stock for June.

The first is that the company offers a healthy yield. At present, analysts expect Reckitt to pay out 176p per share in dividends for 2022. That puts the yield at near 3%.

The second reason I like Reckitt is that the company is relatively recession-proof. Its products, which include Nurofen painkillers, Dettol wipes, and Strepsils lozenges, tend to be purchased by consumers no matter what’s happening in the global economy. This is a valuable attribute in the current economic environment, to my mind.  

Finally, City analysts are currently upgrading their earnings estimates here. This broker activity should support the share price.

Of course, there are risks to consider. One is the company’s valuation, which is higher than the average FTSE 100 valuation. Another in inflation. All things considered though, I see a lot of appeal in this income stock right now.

Edward Sheldon owns shares in Reckitt.

Greencoat UK Wind

What it does: Greencoat UK Wind is the UK’s largest pureplay investment fund specialising in renewable wind power infrastructure.

By  Zaven Boyrazian. With oil prices shooting through the roof, the renewable energy sector has lost a lot of attention. Yet while there is plenty of struggling, unprofitable operations in this industry, Greencoat UK Wind (LSE:UKW) is the exception.

The real-estate investment trust invests in on- and off-shore wind farms scattered across the UK, allowing investors to own part of this infrastructure. All of the clean electricity generated is sold wholesale to the country’s largest energy companies, including Centrica and SSE. And the proceeds are returned to shareholders through an impressive 4.9% dividend yield.

With skyrocketing energy prices, the firm looks primed to generate copious amounts of passive income for the rest of 2022. While the regulatory price caps on energy eliminate pricing power, the group’s 86% net profit margins can easily absorb any adverse regulatory adjustments.

That’s why I believe this could be one of the best additions to my income portfolio today.

Zaven Boyrazian does not own shares in Greencoat UK Wind, Centrica or SSE.

Taylor Wimpey

What it does: A residential developer, operating from 23 regional businesses across the UK

By Paul Summers: As a rule of thumb, the higher the dividend, the more suspicious one needs to be about whether it will get paid. Even so, I’m struggling to ignore the potential income on offer from one of the UK’s biggest housebuilders: Taylor Wimpey (LSE: TW).

Right now, the FTSE 100 member yields 7.4% based on analyst projections. That’s among the highest in the index. Positively, Taylor Wimpey’s record of growing payouts is also pretty stellar. 

One concern is that the housing market could slow as interest rate rises begin to bite. Then again, I’d say a lot of this is already baked in the share price. Having tumbled over 25% in value in 2022 so far, Taylor Wimpey’s shares trade at less than seven times forecast earnings.

The need for me to remain diversified is as relevant as ever but I’d say the risk/reward trade-off looks attractive here.

Paul Summers does not own shares in Taylor Wimpey.

Severn Trent

What it does: Severn Trent predominantly provides water and waste services to 4.6m customers under the businesses Severn Trent Water and Hafren Dyfrdwy.

By Andrew Mackie: 2022 proved to be a year of recovery for Severn Trent (LSE:SVT). Its regulated water business saw turnover jump 6.5% to £1.8bn driven primarily by patterns of usage amongst business customers returning to normal.

In the present backdrop of high inflation and slowing economic growth, I am always on the look-out for businesses that can provide a steady stream of earnings growth and dividend returns. Severn Trent definitely ticks the boxes in this respect. It has a progressive dividend policy, which will grow by at least CPIH (consumer price index together with housing costs).

Two major risks are 1) a large, and growing, net debt position with 27% index-linked and 2) increasing operating costs particularly in energy and chemicals. However, on the latter point, the business has a natural economic hedge given that it generates 50% of its total power consumption in-house.

With the share price exhibiting some weakness as of late, I see this as an attractive entry point to a purely defensive play.

Andrew Mackie does not own shares in Severn Trent.

Rio Tinto

What it does: Rio Tinto explores, mines, and processes mineral resources worldwide. The firm offers aluminium, copper, and gold among other metals in its large portfolio.

By John Choong Having had a volatile first quarter, Rio Tinto (LSE: RIO) — the second biggest iron ore manufacturer in the world — is riding the wave of rising iron ore prices yet again, as it’s up 20% this year.

After the firm reported record-breaking numbers in its last financial year, it declared an extraordinary dividend of £3.07 per share, with a special dividend of £0.46 as well. While these numbers are unlikely to continue in the next dividend declaration, I believe that the Rio Tinto share price still has plenty of growth in the medium term.

With China being its largest customer, Rio’s top line undoubtedly suffered when China imposed a number of city-wide lockdowns, stifling manufacturing growth. However, China just announced a further easing of curbs in Shanghai and Beijing recently. This should positively impact PMI figures and bring much needed relief to Rio’s order books. As such, I expect its share price to continue growing with high dividend payments to continue.

John Choong has no position in Rio Tinto

IG Group Holdings

What it does: IG Group operates technology, platforms, products and exchanges for traders and investors worldwide.

By Kevin Godbold. In March 2022, IG Group Holdings (LSE: IGG) released an upbeat third-quarter revenue report. Client numbers rose just over 30% year on year to an all-time high against a “challenging” comparative period that included the ‘meme stock’ craze.

IG thrives on market volatility, which helps to attract clients and encourages them to trade. Meanwhile, near 716p, the share price is around 18% lower than a year ago. The stock market could be discounting the possibility of lower earnings ahead. But I reckon the healthy customer base will likely drive IG’s profits through many periods of market volatility in coming months and years.

IG operates in a sector with regulatory risks. But the stock looks good value to me, and the business has strong multi-year cash flow and dividend records. Although analysts’ estimates can change, the forward-looking dividend yield is just over 7% for the trading year to May 2023.

Kevin Godbold owns shares in IG Group Holdings.

B&M European Value Retail

What it does: B&M European Value Retail runs discount variety retail stores in the UK and France. The group’s brands are B&M, Heron and Babou.

By Roland Head. Shares in B&M European Value Retail (LSE: BME) have fallen by 40% so far this year. The slump has come as investors have priced in a post-pandemic slowdown in sales growth.

I think this sell-off has gone too far. This business has always been much more profitable than regular supermarkets and enjoys strong cash generation.

Despite these attractions, B&M shares are currently trading on just nine times trailing earnings, with a 4.3% dividend yield.

There are some risks, of course. B&M has expanded rapidly, and CEO Simon Arora is now planning to retire.

Mr Arora has led the business with his brother Bobby since acquiring it in 2004. There’s no guarantee that B&M’s next CEO, current finance boss Alex Russo, can maintain this success.

Personally, I think B&M’s proven business model will stand the test of time. I think the shares look like a good income buy today.

Roland Head does not own shares in B&M European Value Retail.

BAE Systems

What it does: BAE Systems is an aerospace and arms manufacturer that operates all around the world and is the largest defence contractor in Europe.

By Andrew Woods. Over the past two years, BAE Systems (LSE:BA.) has had dividend yields of 7.7% and 4.6%. This equated to payments of 37.5p and 25.1p in 2020 and 2021, respectively. With a significant order book following escalations in global conflict, it is conceivable that the 2022 dividend could be greater.

The company has not been immune from problems caused by the pandemic, however. It has faced supply chain issues for the raw materials used in its products, like steel. Despite this, the firm did not change its full-year guidance and expects sales to increase by between 2% and 4%.

The war in Ukraine has also prompted a rethink in many countries on the size of defence budgets. If governments choose to increase defence spending, this could be good news for BAE Systems. As the seventh-largest defence contractor in the world, it is likely that many nations will turn to the company for supplies of weapons and aircraft. 

Andrew Woods does not own shares in BAE Systems.

Aviva 

What it does: Aviva is a multiline insurer focused on core markets in the UK, Ireland and Canada. 

By G A Chester. I was hugely impressed by Amanda Blanc when she joined Aviva (LSE: AV) as chief executive two years ago. Her first presentation was assured and waffle-free. She set out the company’s strengths and weaknesses, and a clear, no-nonsense strategy for delivering value for shareholders. 

She’s done exactly what she said. Businesses in disparate geographies have been sold. A big chunk of the proceeds have been returned to shareholders. And the group is now focused on its core markets in the UK, Ireland and Canada where it has strong leadership positions. 

The board has set a clear dividend policy. Distributions of around £870m (31p a share) for 2022 and £915m (32.5p) a share for 2023, followed by annual low-to-mid single digit growth. 

Dividends are never guaranteed, but Blanc at the helm and a share price in the 430p region, yields of 7.2% this year, rising to 7.6% next year, make Aviva my top income stock for June. 

G A Chester does not own shares in Aviva

Legal & General

What it does: Legal & General is an insurance, pensions and financial services provider.  It is focussed on the UK market.

By Christopher Ruane. The financial services powerhouse Legal & General (LSE:LGEN) has a number of things going for it. Long term, I think demand for financial services should be robust. The large sums involved mean that the potential profits are big. Legal & General’s long-established track record and iconic logo help it bring in new customers and hang onto existing ones.

That has translated into an impressive dividend record. Dividends are not guaranteed and the company faces risks, such as a change to UK insurance renewal pricing rules hurting sales volumes or profit margins.

But the dividend is comfortably covered and the company has set out its aim of increasing it in coming years. Although that cannot be guaranteed, the progressive dividend policy could mean growing passive income in coming years. With a 6.9% yield, I see it as an attractive income pick for my portfolio.

Christopher Ruane does not own shares in Legal & General.

Income shares tend to provide a greater yield than many of the growth shares I own. But I’d also expect them to grow at a slower pace too. Right now though, in the current climate, I’d quite like to own dividend-paying assets.

Top income shares

That’s why I’d consider buying British American Tobacco (LSE:BATS). Currently on a 6.2% dividend yield, these FTSE 100 shares offer above-average income.

It’s certainly not the highest available, but there are other factors to consider too. For instance, I’d look to its reliability in distributing dividends to shareholders.

BATS is an established and reliable income share, in my opinion. It has been dishing out dividends for 24 years. That’s an impressive track record.

But dividends are typically paid from earnings, so how’s that looking? Well, it seems to have an impressive track record for earnings too. Over the last 10 years, it delivered annual earnings growth of 9%. That has enabled it to raise its dividend by 6% per year on average. That’s just what I like to see from my favourite income shares.

Looking ahead

It’s confident that it will continue to grow the dividend. It has plans to accelerate growth in its New Category brands, which should facilitate the move from combustibles to non-combustible products. One thing to bear in mind though. There are certainly risks in developing new products and brands. There’s also much competition in this emerging space.  

That said, in addition to its 6.2% dividend yield, I’d also expect its shares to rise in a recession. Its defensive properties are just what I’d look for and I’d happily buy these income shares today.

Quality income and growth

My next top income share is FTSE 250-listed IG Group (LSE:IGG). Founded in 1974, this online broker has evolved to become a leading operator in this competitive industry. Through its platforms, it offers the ability to buy and sell thousands of financial instruments. That include shares, currencies, commodities and more.

IG currently offers an enticing 6% dividend yield. Importantly, I’d say the dividend is sustainable too as it’s more than covered by its earnings.

But I’d buy this financial technology business for more than just its dividend. IG Group is a profitable business with a strong balance sheet. It holds ample cash and generates a double-digit return on capital – a good measure of business quality in my opinion.

Profiting from volatility

It should also benefit from current stock market volatility. More volatility tends to lead to more trading, and that’s good news for a broker.

One thing to look out for is regulatory risk. This industry is prone to changes in regulation. Any restrictions in trading leverage could negatively impact the group’s profits.

That said, its shares have fallen by 12% over the past year. I think it’s an excellent opportunity to buy these high-quality income shares today.