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Investors looking to buy dividend stocks have plenty of options to choose from in the UK. Although passive income can never be guaranteed, there are currently many companies with dividend yields greater than 5%.
Dividend power
Online trading platform provider IG Group (LSE: IGG) is one of my favorite dividend distributors in the FTSE 250 for several reasons.
Firstly, the yield currently stands at 5.2%. That's well above the 3.2% you'd get from a fund that tracks the index. It's also impressively big considering IG stock has seen an absolute crash recently, rising 43% in the last 12 months.
Second, analysts believe this year's payout will be more than double covered by profits. While it's best to treat forecasts with a pinch of salt, recent numbers suggest the company is trading well. As a result of this (and my third reason), IG's dividends should continue to increase, a really encouraging sign.
Since clients trade more when stock prices become volatile, an ever-present concern is that markets will drift for a time. This company (and its peers) are also an easy target for regulators. But a low price-to-earnings (P/E) ratio of nine still looks attractive to me.
I just need the cash to invest.
still holding
Another stock that yields more than 5% is MONY Group (LSE: MONY) — the owner of the price comparison site moneysupermarket.com. I myself own part of the £1.2bn cap.
Share price performance has been poor over the last year. But I have stayed invested in the income stream. As things stand, MONY yields a juicy 5.9%. After a pause, management also started increasing dividends again in 2022.
A clear threat is the number of players in this space. This is to be expected given the huge operating margins that can be generated.
But a P/E of just under 13 arguably takes this into account. When energy markets become more competitive (which will push more people to shop around and eventually switch suppliers), I think the stock price will respond positively.
I stay still.
Hidden income
A final option for solid dividends is ZIGUP (LSE: ZIG), formerly Redde Northgate. Possibly the least known of the three, this company specializes in vehicle rental and accident management.
Now, ZIGUP's dividend track record is pretty good, but not perfect. In 2020, for example, the payout was reduced by almost 30% (to 13.1 pence per share).
To be fair, that year was a blip for most of us. And the Darlington-based company quickly raised its overall dividend again. In FY25, it is expected to be 25.9 pence per share.
However, it does highlight the dangers of owning a company whose fortunes can fluctuate with the health of the broader economy. I'm also a little wary of the amount of debt on its balance sheet.
But ZIGUP could still be a valuable addition to a diversified portfolio. At 6.7%, the return is more than double that of the FTSE 250 and somewhat offsets the additional risk involved.
At just seven times forecast earnings, the valuation is also low for the industrial sector and the UK market as a whole. For now, he will be on the watch list until he has the funds to make a final decision.