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How To Buy Dividend Stocks in the UK 2025

Karl 30th Jan 2025 No Comments

By piling your wealth into stocks that pay dividends and you could be setting up a nice little passive income stream for yourself.

In this article, we’re going to explore the ins and outs of dividends. Plus, we highlight how you can find stocks that make regular payments to shareholders, and explore the two popular dividend investing strategies. Keep reading to learn how to buy dividend stocks as an investor in the UK.

What is Dividend Investing?

A dividend is a payment made by a company to its shareholders and is usually paid on a quarterly or annual basis. The payment may be in cash, or in the form of additional equity.

It’s worth knowing that firms issuing dividends are essentially sharing a slice of their profits with investors. This is why the size of dividends can differ from one year to the next.

However, not all companies closely align their dividend payments with the size of their profits. Firms may still issue generous payments to investors even after a bad year and if they do, this is likely to increase their ‘dividend yield’.

Now we’ve touched on what dividends are, you probably won’t be surprised to learn that ‘dividend investing’ simply refers to an investing style where investors buy stocks according to their dividend potential. This is done with the long-term goal of building up a stream of passive income (money that you make without working for it!).

Common Dividend Investing Strategies

There are essentially two main dividend investing strategies: A ‘Dividend Growth’ strategy and a ‘Dividend Yield’ strategy.

Let’s take a closer look…

  • A Dividend Growth strategy is where investors seek to put their money in companies still in their development stage. In other words, these investors are looking for firms that have demonstrated stable growth and rising profits year after year. While not always the case, companies ‘on the up’ are decent candidates for being able to steadily increase their dividend payments over time.
  • A Dividend Yield strategy is where investors take note of one thing – dividend yields. A dividend yield refers to the percentage of a company’s share price that it pays out in dividends each year. So, if a firm’s share price is £100 and pays £2 per share in annual dividends, its dividend yield is 2%.

Why Don’t All Companies Pay Dividends?

Not all companies pay dividends. Amazon famously doesn’t issue regular payments to shareholders while other big-name companies in this boat include Apple, Alphabet, Meta, Boeing, Airbus, and Exxon Mobil –  and there are many more too!

A good number of firms shun dividends simply because they aren’t profitable. After all, without profits, where would the money come from? However, for companies that are profitable, the decision to withhold payments to shareholders is simply a strategic one.

Often, companies that don’t pay dividends prefer to re-invest their profits back into the business. The reasoning behind this is that investors will (hopefully) see higher, and faster capital growth, as opposed to earning a short-term dollar or two. Withholding dividends may also be tax-efficient.

As an added boon, refusing the temptation to issue dividends might be looked upon favorability by non-market stakeholders, such as employees.

Imagine you’re told by your employer: “Sorry, we can’t give you a pay rise this year, we don’t have the budget.”

And then you discover your employer has been making hefty dividend payments to shareholders.

It’s likely you wouldn’t be too pleased.

A firm that doesn’t pay dividends to shareholders is able to side-step this delicate issue.

Yet, while withholding dividends does have its benefits to business, there’s another side to this coin of course. Let’s not forget the opportunity to earn dividends can attract investors in the first place. So if a firm cuts back on making regular payments to shareholders, or stops paying dividends altogether, it’s easy to see how this could lead to an outflow of capital.

How to Find Dividend Stocks

If you’re interested in dividend investing and earning a passive income, here are three tips to find the right stocks for you.

You might also be interested in my rundown of the highest-paying dividends stocks for 2025.

1. Find firms with a history of paying dividends

Dividends are rarely guaranteed but if you invest in firms that are profitable and have consistently paid out dividends to shareholders then it’s likely you’re onto a winner.

2. Nail down your dividend investing strategy

If you’re keen to invest and earn a share of the spoils then it’s important to get to grips with your preferred dividend investing strategy. For example, if you’re a ‘growth dividend’ investor you’ll need to identity firms in future-proof sectors that have a decent chance of increasing their profitability over time.

If going down the ‘yield dividend’ route however, you’ll need to compare a company’s profits against its dividend payments. Just be mindful that a high dividend yield isn’t the be-all-and-end-all. In fact, if a dividend yield is too high, there’s a chance it simply isn’t sustainable in the long-run. This is why yield dividend investors may wish to prioritise firms with dividend-payout ratio less than 60% to 70%.

3. Choose firms with high pricing power

Because dividends are closely linked to profits, investing in firms that specialise in goods with inelastic demand could be an astute move. In other words, if a firm has high pricing power then demand for its goods or services are less likely to be impacted by any external factors. This is why investing in firms with high pricing power could be a nifty way to boost your chances of earning healthy dividends.

While there’s no set definition of firms with high pricing power, companies involved in utilities, prescription drugs, and groceries are some decent examples.

How to Buy Dividend Stocks in 2025

Now, let’s get to the good part!

Buying dividend stocks is very similar to buying non-dividend paying stocks. To do so, you will need to find a reputable online brokerage that offers dividend stocks, sign up and complete a purchase.

Here is an overview of the process:

Step 1: Choose a stockbroker or trading platform

Choose an online brokerage that has a strong reputation, stringent security and a user-friendly interface. Popular UK trading platforms that offer dividend stocks include:

  • Hargreaves Lansdown: Good for research tools
  • Freetrade: Commission-free trading
  • eToro: Social trading features
  • Interactive Investor: Flat-fee structure

Consider opening through a Stocks and Shares ISA to protect your dividends from tax.

Step 2: Research and select dividend stocks

Spend some time shopping around for dividend stocks that have a strong history of payouts, strong financials and a positive long-term outlook.

A word of warning here: High dividend yields can be appealing. However, these stocks can come with higher risk and volatility.

Here is a checklist to use when finding dividend stocks: 

  • A strong track record of dividend payments
  • A sustainable dividend yield (typically 3-6%)
  • Low payout ratios (below 70% is ideal)
  • Solid financial health and growth potential

    Step 3: Buy your chosen dividend stocks

    As I mentioned above, buying dividend stocks is similar to buying regular stocks. Once you have created an account with an online brokerage, follow the steps that appear on your screen to make your first investment.

    They will probably look something like this:

    • Log in to your brokerage account
    • Search for the stock or ETF
    • Enter the amount you want to invest
    • Choose “Market Order” for instant purchase or “Limit Order” to set a preferred price
    • Confirm the transaction

    Step 4: Reinvest or withdraw dividends

    When dividends are paid out, you can choose to

    • Automatically reinvest dividends for compound growth
    • Withdraw dividends as passive income

    The route that you choose to go down depends on your goals. However, I recommend reinvesting at least a percentage of each payout so that you can take advantage of compound interest.

    Step 5: Monitor and adjust your portfolio

    Every no and then, review your portfolio to make sure that it is aligned with your investment strategy and long-term goals.

    It’s important not to get caught up in short-term fluctuations. However, it’s best practice to keep an eye out for major signs that it might be time to switch things up. Check out our guide on how to spring clean your portfolio to learn more.

    Are you looking to invest in dividend stocks? Take a look at our article that explains how to buy shares. And don’t forget… you can hold dividend stocks in a stocks and shares ISA.

     

     

     

     

     

     

    Want to learn more about investing? Of course you do! Sign up for our fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.

    Disclaimer: When investing your capital is at risk. Remember, the value of any investment can both rise and fall. Always do your own research. 

    MoneyMagpie is not a licensed financial advisor. Information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.



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    Jasmine Birtles

    Your money-making expert. Financial journalist, TV and radio personality.

    Jasmine Birtles

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