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7% dividend yield! Top UK shares I’d buy in May

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Harshil Patel
·3-min read
One English pound placed on a graph to represent an economic down turn
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Dividends from UK shares form an important part of shareholder returns. For instance, the FTSE 100 returned just 1.95% per year over the past five years without including dividends. But this jumps to 6% per year including dividend payments.

Over time, dividends can make a significant impact on total return. Some UK shares offer relatively generous dividend income. Let’s look at some that are currently offering a dividend yield of over 6%.

UK shares with dividend appeal

At the top of my list is one of the UK’s leading housebuilders, Persimmon (LSE:PSN). It currently offers a dividend yield of around 7.5%.

With bank interest savings at record lows, Persimmon’s dividends could play an important role for shareholder income. Of course, dividends need to be looked at with the wider business prospects.

Encouragingly, Persimmon recently released a reassuring trading update. It made a strong start to the year with forward sales 23% ahead of last year and 11% ahead of the same point in 2019.

Demand for newly built homes remains healthy. And the industry is being helped by the availability of mortgages and stamp duty incentives for new homebuyers.

Cautious optimism

The outlook is also encouraging. The company is cautiously optimistic regarding consumer confidence over the coming year. It is also ready to manage market conditions if they change, as witnessed from last year’s disruption.

A word of warning, however. Dividends can change depending on how a business performs. Any decline in consumer confidence and housebuying could negatively affect Persimmon’s performance. This could have an impact on the level of dividends distributed to shareholders.

Overall, I’m happy with Persimmon’s progress and would happily include it as one of my top UK shares to buy in May.

Dull but mighty

Next, I’m considering Phoenix Group (LSE:PHNX) as a top dividend-paying UK share. It’s listed on the London Stock Exchange and forms part of the FTSE 100. It specialises in the acquisition and management of insurance and pension funds.

It might sound like a dull business to some, but often this is exactly the type of investment that can provide stable long-term returns. What I particularly like about Phoenix Group right now is its 6.6% dividend yield. That’s one of the highest yields in the FTSE 100!

Another positive attribute I look for when searching for high-dividend UK shares is dividend growth. Has the company consistently grown its dividend payments every year? In Phoenix Group’s case, yes it has.

I also want to see if the business is performing well. Dividends aren’t guaranteed, so it’s good to see that Phoenix earnings are growing. It recently released an update indicating record cash generation, a rise in pre-tax profits, and signs of future growth.

Risks to look out for

Bear in mind though, its past earnings have not always risen consistently every year. Further fluctuations over the coming years could potentially weaken either its dividend payments or its share price. Also, unexpected changes in interest rates could impact Phoenix. Although it manages to mitigate some of these risks, it’s something to look for in the future.

All things considered, at a price-to-earnings ratio of just 8.7 times, this stock looks cheap to me. And with the generous near-7% dividend yield, I’m tempted to add this to my Stocks and Shares ISA.

The post 7% dividend yield! Top UK shares I’d buy in May appeared first on The Motley Fool UK.

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Harshil Patel owns shares in Persimmon. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021