Our investment guru reveals the ten companies that will pay you an income of up to 9.5

The first modern stock exchange was launched in 1602 when Elizabeth I was on the throne and shares in the Dutch East India Company were put up for sale. The trading giant started paying cash dividends just ten years later and continued for almost 200 years.

Dividends have been a crucial part of investing ever since, tangible proof that companies value their shareholders and have the financial heft to reward them with hard cash.

These annual payouts also make a huge difference to long-term returns. Take the FTSE 100 index of Britain’s biggest listed firms. Share prices in that index have risen just 32 per cent over the past 25 years so £1,000 in 2000 would be worth £1,320 today. But most companies in the index pay dividends and if an investor had reinvested all that cash, their pot would be worth around £3,200.

In other words, dividends matter and British firms have a strong track record of paying them. This year alone, the UK’s top 100 are expected to hand almost £93 billion to shareholders, taking payments over the past five years to nearly £500 billion.

Some firms are much more generous than others, however. The top ten provide annual income that far exceeds saving accounts – and most should deliver steady share price growth too.

Phoenix Group

Savings and retirement specialist Phoenix Group tops the list. City brokers expect the firm to pay dividends of almost 56p this year and with the shares at £5.73, the stock is yielding 9.7 per cent, almost double even the best cash ISAs.

Phoenix has decent prospects too. A leader in its field, Phoenix has 12 million customers, equivalent to more than 20 per cent of adults in this country. Once, Phoenix was known for buying up closed pension schemes from troubled insurers and making sure members were paid their dues.

While that remains a key part of the group, directors took a bold step in 2018 with the purchase of Standard Life, one of Britain’s best-known savings brands.

The deal transformed Phoenix into a much larger company, providing retirement and savings products for company employees, institutions and individuals.

Annual results, announced last week, suggested chief executive Andy Briggs is on the right track. Profits rose, borrowings fell, the workplace pension business soared and Briggs unveiled a raft of initiatives to cut costs and fuel growth.

Crucially for income investors, the group increased the 2024 dividend by 2.5 per cent and stressed its commitment to sustainable and growing payouts to shareholders. Phoenix shares rose on the figures but Briggs is determined to do everything he can to drive the price considerably higher. The stock has risen more than 20 per cent over the past year but it topped £7.40 in 2021 and Briggs would like to see it recover, and then some, from here.

Midas verdict: With the population growing older, savings are a huge concern for millions of households throughout the UK. Phoenix is well placed to benefit and the shares offer juicy income and strong growth potential.

M&G

Phoenix is not the only financial firm to offer attractive dividends to investors. Five of our top ten heroes are savings and insurance groups, with M&G a close second to its rival and Legal & General not far behind. Like Phoenix, M&G is optimistic about the future, and chief executive Andrea Rossi made an express commitment to dividend growth, as he unveiled annual results for 2024 last week.

Brokers are looking for a payout of around 20.6p this year, putting the stock on a yield of 9.4 per cent, again more than generous when compared to bank and building society savings rates.

M&G resembles Phoenix, in that it focuses on helping people to save for the future and live well in retirement but there are important differences in the types of customers each attracts and how they deal with their money.

Phoenix specialises in administration and guidance but relies on external experts to manage customers’ cash. M&G manages almost all its customers’ cash in-house and offers this service to other firms too. Rossi looks after £315 billion of assets and just over half, or £159 billion, is managed on behalf of other clients, a strong endorsement of the group’s nous.

Rossi joined M&G in 2022, since when profits have risen, debts have come down and costs have been slashed. But there is still plenty of work to do. Recent years have been difficult for investment firms. With interest rates surging after the pandemic, savers abandoned financial markets in droves and put their money into cash.

Looking ahead, however, suggests room for optimism. M&G has a strong institutional investment arm, a growing annuity business and is parent to PruFund, one of the top savings names.

Midas verdict: Market watchers seemed unimpressed with M&G’s results last week and the shares fell back. That presents an opportunity for patient investors. At £2.18, the stock should rebound.

Under chief executive Dame Amanda Blanc, Aviva has been turned around and the company is now the largest UK insurer, with 17million customers in the UK alone

Legal and General

Legal & General is another well-known firm in the savings sector, also in the midst of change under a new chief executive Antonio Simoes.

Like his peers, Simoes is keen to make his business simpler, more focused and better able to deliver long-term growth.

He is also keen to reward shareholders with rising dividends, up 5 per cent last year and predicted to increase to 21.8p. With the shares at £2.43, that puts L&G on a tempting yield of 9 per cent.

Simoes joined little more than a year ago but has already made some big changes, selling off a housebuilding business, launching new funds and sealing a strategic partnership with Japanese life assurer Meiji Yasuda to accelerate expansion in America.

L&G is larger than Phoenix and M&G combined and its heritage dates back almost 200 years. Transforming such a big beast is no mean feat. But Simoes is making progress and results for 2024 were encouraging, including a plan to return £5 billion to shareholders in the next three years.

Midas verdict: L&G shares have had a rough ride and they are still lower than when Simoes took the helm. That should reverse in time. With a chunky dividend thrown into the mix, the stock looks attractive.

Best of the rest

Sticking with financials, Aviva and Admiral are also in our top ten – Admiral yielding 7.1 per cent and Aviva on 7.3 per cent.

Under chief executive Dame Amanda Blanc, Aviva has been turned around and the company is now the largest UK insurer, with 17 million customers in the UK alone.

More importantly for shareholders, the business is growing, dividends are rising and there is a palpable sense of confidence across the business. The stock has has more than doubled to £5.55 since Blanc took the helm – fans believe there is more to come.

The rest of our top ten span property, tobacco and oil.

Office, retail and regeneration group LandSec has slumped from a high of more than £13 to £5.69. Housebuilder Taylor Wimpey has fallen almost 50 per cent to £1.14. Leisure and logistics specialist LondonMetric is down a third to £1.81.

All three are determined to do better by shareholders through sustainable dividend payments.

On a yield of 6.9 per cent, LondonMetric tenants include Alton Towers and Amazon and the business is run by its founder, Andrew Jones – often a good sign.

Taylor Wimpey offers an eye-catching 8.2 per cent yield and the company should benefit if the Government’s housebuilding agenda has genuine legs.

LandSec boss Mark Allan is determined to improve profits and fuel growth. Property firms tend to ebb and flow in line with economic conditions but now could be time to snap up a bargain, unless US President Trump sends the entire world into a tailspin.

Even if he does, some constants remain. Smokers still need cigarettes and many of those who have kicked the habit are now hooked on vapes, nicotine gum or heated tobacco. BAT supplies them all.

The firm claims to be committed to a smokeless world but still makes most of its money from brands such as Rothmans, Lucky Strike and Camel.

Disaffection with so-called ‘sin stocks’ sent BAT shares plummeting. Wokery is now out of fashion and BAT has rebounded in recent months but the stock remains well below its highs and there may be further gains to come.

BP is last on our list, with a yield of 5.7 per cent. The oil and gas firm was full of green promises a few years ago but last month declared a reset, refocusing on carbon fuels and rowing back on renewables. At £4.46, it has become a poor relation to rival Shell and some believe it is vulnerable to a bid.