The Pick of the 5% Dividend Yield Club (UK)

Level 6 of the DIY Income Investor Income Pyramid is high-yield shares in a High Yield Portfolio (HYP). The 'best buys' are continually changing, as the share prices rise and fall and outlook for future dividends evolves. The following is a list of the most promising current candidates for your HYP - paying more than 5%.

The selection from The Motley Fool's article 'Join the 5% Club', which identified 31 large UK-quoted companies (from the FTSE 350) providing an historic dividend yield of 5% or more (based on data from Digital Look on Friday 25 March 2011).  Cliff D'Arcy, the author, points out that any potential investor would need to do their own research and add their own 'filters' before selecting a high-yield share. He suggests the following filters:

• a history of increasing dividends (to show commitment to dividends)
• dividend cover of at least 1.5 (to ensure that the dividend is sustainable)
• a market capitalisation of at least £1 billion (to ensure some financial stability)
• diversification between economic sectors (to reduce risk)

Using those criteria, the original list can be reduced to the following, which I have organised by broad economic sector:

•  Utilities
• Drax Group (LSE: DRX)
• National Grid (LSE: NG)
• United Utilities (LSE: UU
• Scottish & Southern Energy (LSE: SSE)
• Severn Trent (LSE: SVT)
• Transport / Tourism
• FirstGroup (LSE: FGP)
• Thomas Cook Group (LSE: TCG)
• Retail
• Home Retail Group (LSE: HOME)
• Insurance / Financial
• Catlin Group (LSE: CGL)
• Resolution (LSE: RSL)
• Amlin (LSE: AML)
• Aviva (LSE: AV)
• Intermediate Cap Grp (LSE: ICP)
• Leisure
• Ladbrokes (LSE: LAD)
• Pharma
• AstraZeneca (LSE: AZN)
• Comms
• C&W Worldwide (LSE: CW)
• Defence
• BAE Systems (LSE: BA)

This list obviously has a bit (!) of concentration in the insurance/financial and utility sectors but it should be possible to make a selection for your HYP that is diversified enough.

It should go without saying that you need to do your own research before going any further - in particular you might want to check the numbers as well as looking at the broker consensus on future dividend yield.

You should also look at Todd Wennings Dividend Report Cards.

  

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.