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The Top 20 Dividend Stocks

DIG THE DATA: Morningstar data reveal the 20 highest yielding stocks on the FTSE 350 for February 2013

Alanna Petroff 27 February, 2013 | 6:00AM

A more up to date version of this article can be found here

Investors often turn to dividend-paying stocks to give a boost to their investment portfolios.

It’s important to note that high dividend yields should not be your sole consideration when choosing investments

“As interest rates have fallen for gilts, savings and bonds in recent years, investors have increasingly turned to shares with high dividend yields as a way to compensate for lower rates elsewhere in the market and grow their income stream and capital base in the longer-term,” says Morningstar analyst Todd Wenning.

To help investors find high-dividend paying companies, we have conducted a search of our Morningstar database to reveal the top dividend-paying stocks on the FTSE 350. The search was conducted on February 25, 2013 and excludes investment trusts.

The following 20 large- and mid-cap companies are paying dividends that range from 5.5% to nearly 13%.

FirstGroup (FGP)
Sector: Industrials
Dividend Yield: 12.73% 

Cable & Wireless Communications (CWC)
Sector: Communication Services
Dividend Yield: 10.00%

Man Group (EMG)
Sector: Financial Services
Dividend Yield: 9.80%

RSA Insurance Group (RSA)
Sector: Financial Services
Dividend Yield: 7.85% 

Resolution (RSL)
Sector: Financial Services
Dividend Yield: 7.77%

Aviva (AV.)
Sector: Financial Services
Dividend Yield: 7.22% 

Halfords Group (HFD)
Sector: Consumer Cyclical
Dividend Yield: 6.98% 

Stobart Group (STOB)
Sector: Industrials
Dividend Yield: 6.65% 

Sector: Financial Services
Dividend Yield: 6.51% 

Phoenix Group Holdings (PHNX)
Sector: Industrials
Dividend Yield: 6.42% 

Sector: Basic Materials
Dividend Yield: 6.12% 

AstraZeneca (AZN)
Sector: Healthcare
Dividend Yield: 6.05%

Vodafone (VOD)
Sector: Communication Services
Dividend Yield: 5.97%

Catlin Group (CGL)
Sector: Financial Services
Dividend Yield: 5.89%

Tullett Prebon (TLPR)
Sector: Financial Services
Dividend Yield: 5.85% 

LondonMetric Property (LMP)
Sector: Real Estate
Dividend Yield: 5.84%

Go-Ahead Group (GOG)
Sector: Industrials
Dividend Yield: 5.82% 

Segro (SGRO)
Sector: Real Estate
Dividend Yield: 5.58%

Chemring Group (CHG)
Sector: Industrials
Dividend Yield: 5.57%

National Grid (NG.)
Sector: Industrials
Dividend Yield: 5.57% 

Amlin (AML)
Sector: Financial Services
Dividend Yield: 5.48%

(Chemring and National Grid tied for 19th place.)

Morningstar originally conducted this same search for top dividend payers in October 2012. We wrote about our findings in an article that went on to become one of the most popular articles of 2012. If you compare this group of 20 companies to October's group, you'll see that dividend yields are now lower for most companies because their share prices have been rising as the markets have rallied. Furthermore, well-known large-caps--Vodafone and National Grid--have both been added to this list.

It's also worth noting that RSA Insurance Group recently cut its dividend by nearly 33%, which means that it may not be featured on this list in the future. This is what Morningstar analyst Drew Woodbury had to say about the dividend cut: 

"[RSA's] announcement of a nearly 33% dividend cut ... came as a surprise to the market ... The firm had maintained a higher payout ratio relative to insurance peers, who tend to retain more of their earnings given the potential for volatile claims payouts. While many may read this cut as a negative, we would prefer that the company err on the side of caution and pay out excess capital to shareholders in a special dividend or through opportunistic buybacks rather than a high stable dividend that puts a burden on the firm's financial stability."

A Word of Warning

While the above list can be helpful for targeting high dividend-paying companies, it’s important to note that high dividend yields should not be your sole consideration when choosing investments.

“Ultra-high dividend yields (8%+) can be particularly attractive in this low-return environment, but it’s important to resist the temptation to load up on these shares,” says Wenning. “Most ultra-high yields are simply too good to be true and are more often a product of a poor outlook for the company than a generous dividend policy. Indeed, a recent study by Société Générale found that ‘an abnormally high yield is generally a sign of distress’ and showed that groups of shares in the ultra-high yield categories are more likely to have lower realised yields.”

The dividend yields above were calculated by adding up each company’s dividend payments over the last 12 months and then dividing that figure by the current share price. This data was collected on February 25, 2013.

To learn about common dividend-investing mistakes, read Wenning’s article: “The 7 Deadly Sins of Dividend Investing”.    

Think you're an investing genius? Click here to prove it with Morningstar's Investing Mastermind Quiz.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
0P0000I351  -
Amlin PLC442.90 GBX0.00-
AstraZeneca PLC3,781.50 GBX0.61
Aviva PLC509.00 GBX2.00
Cable & Wireless Communications PLC52.05 GBX1.96-
Catlin Group Ltd516.50 GBX0.19-
Chemring Group PLC238.00 GBX-0.10-
EVRAZ PLC91.10 GBP0.00-
FirstGroup PLC125.70 GBX-0.24-
Go-Ahead Group (The) PLC1,989.00 GBX1.79-
Halfords Group PLC452.00 GBX1.78-
ICAP PLC400.60 GBX1.68
Man Group PLC100.80 GBX1.15-
National Grid PLC824.00 GBX-0.60
Phoenix Group Holdings640.00 GBX-0.23-
Resolution Ltd289.30 GBX2.66-
RSA Insurance Group PLC94.70 GBX2.27-
Segro PLC338.30 GBX1.14-
Stobart Group Ltd136.25 GBX-1.27-
Tullett Prebon PLC304.60 GBX1.57-
Vodafone Group PLC214.15 GBX1.01
About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.