Dividend-paying UK stocks: a once-in-a-decade chance to grow wealth?

For investors looking to buy UK stocks as a means to earn passive income, dividends are often the first choice. But many dividend investors have likely spent the last few years feeling underwhelmed.

Data shows that dividend-focused indexes like the FTSE UK Dividend+ have lagged behind the broader market. For the past decade, it delivered a 30% lower total return than the FTSE 100 and FTSE 250 combined.

This is a real blow, especially for those hoping to supercharge a retirement portfolio through dividend reinvestment. By prioritising dividends, they may have lost out on the best gains.

But that situation looks to be changing, offering a once-in-a-decade opportunity for investors to capitalise. In 2025, the dividend index outpaced the top 350 FTSE-listed stocks by 1.3 times.

Could this be the start of an income stock resurgence?

UK stocks driving the surge

A ‘perfect storm’ of conditions helped send dividends stratospheric in 2025 — high interest rates, geopolitical unrest, and surging demand for commodities. These factors helped boost both finance and mining — two sectors known for their generous dividends.

Almost all banks, insurers, and miners enjoyed exceptional growth, boosting the total return on the FTSE UK Dividend+ index. Its top holding, Rio Tinto, returned 48% to shareholders, while major banks HSBC and NatWest returned 23.6% and 32% respectively.

A controversial pick

Finance and mining aside, another sector looks highly promising for dividend growth over the coming three years: tobacco. While British American Tobacco remains a leader in the field, key rival Imperial Brands (LSE: IMB) is looking increasingly attractive.

Naturally, tobacco stocks may not be everybody’s cup of tea â particularly as global smoking regulations tighten. There’s a growing risk that complete smoking bans in major cities could decimate key revenue streams.

But there’s also a strong argument that the shift toward less-harmful products is a more effective route than outright prohibition. These so-called ‘next-gen’ products (NGP) have delivered double-digit revenue growth for Imperial, narrowing losses toward breakeven and complementing core tobacco pricing power.

The company targets explicit 4% annual dividend growth for the next three years. This is supported by full-year 2026 forecasts of 8%-9% earnings growth and 3%-5% adjusted operating profit growth. Its dividend coverage is also more than sufficient, with a payout ratio of just 63.8% and 2.13 times cash coverage.

Other options

Strong dividend growth aside, many investors may be unconvinced by the less-harmful product narrative of tobacco. For those seeking dividend opportunities with a healthier angle, both Aviva and Primary Health Properties also deserve a closer look.

Each boasts strong dividend forecasts in the coming three years, with Aviva offering mid-single-digit growth guidance and Primary Health dedicated to its 30+ year unbroken growth streak.

With the FTSE UK Dividend+ Index hitting new highs after outpacing the FTSE 350 in 2025, there may be a rare once-in-a-decade chance to benefit. Many of its cash-rich dividend giants yield 5%+ and offer defensive income with 4%+ growth forecasts through 2028.

Amid rate cuts and overseas inflows, targeting sustainable payouts at fair valuations is a popular strategy to compound wealth for retirement.

The post Dividend-paying UK stocks: a once-in-a-decade chance to grow wealth? appeared first on The Motley Fool UK.

Should you invest Â£1,000 in Imperial Brands PLC right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Imperial Brands PLC made the list?

See The Six Stocks

More reading

HSBC Holdings is an advertising partner of Motley Fool Money. Mark Hartley has positions in Aviva Plc, HSBC Holdings, and Primary Health Properties Plc. The Motley Fool UK has recommended HSBC Holdings, Imperial Brands Plc, and Primary Health Properties Plc. 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.